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| Version 1 | Version 2 |
|---|---|
| Surprise drop in UK inflation is good news for consumers | Surprise drop in UK inflation is good news for consumers |
| (about 1 month later) | |
| Rising inflation has been one of the big economic stories of the past year. The depreciation of sterling after the EU referendum has made the things Britain imports, such as clothes and food, dearer and the cost of living has risen steadily as a result. | Rising inflation has been one of the big economic stories of the past year. The depreciation of sterling after the EU referendum has made the things Britain imports, such as clothes and food, dearer and the cost of living has risen steadily as a result. |
| The drop in the annual inflation rate to 2.6% in June was a welcome surprise. Two years ago, inflation was zero; in the month of the Brexit vote it was 0.5%. By May it had risen to 2.9%, with many City analysts confident that it would breach the 3% barrier within the next couple of months. | The drop in the annual inflation rate to 2.6% in June was a welcome surprise. Two years ago, inflation was zero; in the month of the Brexit vote it was 0.5%. By May it had risen to 2.9%, with many City analysts confident that it would breach the 3% barrier within the next couple of months. |
| Last month’s fall, while much bigger than anybody in the financial markets was expecting, does not mean that inflation has reached a turning point. The coming months are likely to see some further moves upwards in the cost of living, but in the absence of a fresh fall in the value of the pound or a spike in oil prices the peak is not that far away. | Last month’s fall, while much bigger than anybody in the financial markets was expecting, does not mean that inflation has reached a turning point. The coming months are likely to see some further moves upwards in the cost of living, but in the absence of a fresh fall in the value of the pound or a spike in oil prices the peak is not that far away. |
| That will be good for consumers in two respects. Firstly, it means the squeeze on real incomes in 2017 and 2018 will be less severe and less pronounced than some have feared. Secondly, it removes the threat of an interest rate rise from the Bank of England. An August increase in the cost of borrowing, while never looking all that likely, is now off the agenda. | That will be good for consumers in two respects. Firstly, it means the squeeze on real incomes in 2017 and 2018 will be less severe and less pronounced than some have feared. Secondly, it removes the threat of an interest rate rise from the Bank of England. An August increase in the cost of borrowing, while never looking all that likely, is now off the agenda. |
| There are still lagged effects of the fall in the pound but they are now fading. Official figures for producer prices are a good guide to inflationary pressure early in the pipeline because they measure how much industry is paying for fuel and raw materials, and how much it is charging for goods when they leave factories. | There are still lagged effects of the fall in the pound but they are now fading. Official figures for producer prices are a good guide to inflationary pressure early in the pipeline because they measure how much industry is paying for fuel and raw materials, and how much it is charging for goods when they leave factories. |
| At their peak in January, industry’s fuel and raw material bills were increasing at an annual rate of 19.9% but since then the rate of increase has halved to 9.9%. Similarly the cost of goods leaving factory gates was at its highest, 3.7%, in February and March but has now slipped back to 3.3%. | At their peak in January, industry’s fuel and raw material bills were increasing at an annual rate of 19.9% but since then the rate of increase has halved to 9.9%. Similarly the cost of goods leaving factory gates was at its highest, 3.7%, in February and March but has now slipped back to 3.3%. |
| It would be unwise, given Britain’s issues down the years, to say inflation is a problem solved. Opec could find a way of making an oil-price rise stick. Workers in the UK could find a way of securing more generous pay awards. Neither, though, looks particularly likely. This is the 2010s not the 1970s. | It would be unwise, given Britain’s issues down the years, to say inflation is a problem solved. Opec could find a way of making an oil-price rise stick. Workers in the UK could find a way of securing more generous pay awards. Neither, though, looks particularly likely. This is the 2010s not the 1970s. |
| Inflation | Inflation |
| Economics | Economics |
| Economic policy | Economic policy |
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