Inflation drops, reducing interest rate worries
Published On 15 August 2007
Inflation in the UK fell markedly last month, easing worries that interest rates will increase again before the end of the year.The Office for National Statistics (ONS) revealed that consumer price index (CPI) inflation fell to 1.9 per cent in July - down from 2.4 per cent the month before.
This is the first time CPI inflation has dipped below the government's two per cent target since March 2006 and will raise hopes that interest rates may have reached their peak.
Last week, the Bank of England said that it expected interest rates would have to increase to at least six per cent if inflationary pressures in the UK economy were to be relieved.
Ian Kernohan, an economist at RLAM, commented: "Having surprised on the upside last month, there was a much bigger downside surprise for inflation this month.
"Although the Monetary Policy Committee focus on future inflation rather than today's rate, the fact that CPI has come in well below their expectations must put some question mark over a move to six per cent interest rates."
However, Andrew Montlake, a partner at independent mortgage broker Cobalt Capital, urged consumers to remain cautious. He added: "Borrowers shouldn't hang out the bunting quite yet.
"The sharp fall was primarily caused by short-term factors and there's every chance inflation will snap back above two per cent in the months ahead."
