High street price fall eases fears of interest rate rise
Prices for goods on the high street have eased, according to the latest inflation figures from the Office for National Statistics.
The Consumer Price Index (CPI) measure of inflation for last month fell more sharply than expected, to 1.6% from 1.9%, as a late start for clothing sales spilled over into July.
The separate Retail Prices Index (RPI) measure, which includes housing costs, was 2.5%, down from 2.6% in June, the ONS said.
It means inflation has been below the Bank of England's 2% target for seven months in a row, the first time this has happened since 2005.
The steep fall is likely to ease any pressure on the Bank of England to hike interest rates amid speculation about the timing of the first increase since they were slashed to 0.5% five years ago.
Danske Bank chief economist Angela McGowan said the fall in inflation was good news: "Local households will welcome the fact high street prices have eased back a little – taking pressure off disposable incomes and also reducing the need for an early interest rate hike.
"This latest fall was driven by a drop in the price of clothing – nudged down by summer sales on the high street. However, there were also some notable falls in the price of alcohol and financial services such as overdraft charges."
Meanwhile, supermarket price wars continued to keep a lid on food and non-alcoholic beverages, which saw a third month in a row of flat or negative inflation – the longest period in nearly a decade.
Clothing and footwear prices made the biggest contribution to the fall in inflation, with prices down 5.7% between June and July.
Food and non-alcoholic beverages fell by 0.4% year on year after no change in June and a 0.6% drop in May.
CPI was also watered down in July by falling prices for spirits and wine, while bank overdraft charges and fees for bankers' drafts put downward pressure on inflation too. Increases in used car prices and sea fares made an upward contribution.
Elsewhere, a separate measure of Producer Price Inflation saw a 7.3% year-on-year fall for input prices – materials and fuels bought by UK manufacturers.