News Column

Business: Agenda: ECONOMICS

August 24, 2014

Simon Goodley



The UK's annual inflation rate fell more sharply than expected in July, it was revealed on Tuesday, a revelation that was seen as dimming the prospect of an interest rate rise in 2014. Dimming the prospect until Wednesday's news, that is.

By then, the prospect of a pre-Christmas increase in interest rates had suddenly risen after it was revealed that two members of the Bank of England's key policymaking body had broken ranks and voted for higher borrowing charges.

Anyway, the consumer prices index (CPI) fell to 1.6% from 1.9% in June, marking the seventh month in a row that annual inflation has registered below the Bank of England's 2% target, according to Office for National Statistics data. Economists had expected a smaller fall to 1.8%.

The larger-than-expected drop was driven mainly by greater summer price discounting among clothing retailers.

Still, City dealers now believe it is possible that rates could be lifted from their emergency level of 0.5% by the end of the year, as three years of unanimous 9-0 decisions at Threadneedle Street ended with Martin Weale and Ian McCafferty calling for the cost of borrowing to be raised by 0.25 percentage points. Clear?



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Source: Observer (UK)


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