Consumer Prices Index rises to 4.4% in July

Financial News

CPI rises in JulyThe Consumer Prices Index (CPI) rose in July to 4.4% from 4.2% in June. The Retail Prices Index (RPI) was unchanged at 5%.

The main drivers of the rise in CPI were increases in the price of clothing and footwear which saw their biggest increase since records began in 1997 and also rising fees in financial services which rose in July 2011 compared to a fall at the same time last year.

Any downward pressure came from food and soft drinks.

Exchange of letters

The governor of the Bank of England Mervyn King is obliged to write a letter to the chancellor, George Osborne, every three months if CPI is more than 1% above or below the target rate of 2%. Inflation since 2000

The governor blamed the current levels of inflation on “the increase in the standard rate of VAT to 20%, and past increases in global energy prices and import prices”.

He went on to say that “the big risks currently facing the UK economy come from the rest of the world”.

In his response the chancellor said that “A crisis of confidence in the global economy demands a global response”.

Interest rates

The slight rise in inflation will probably have little effect on the Bank of England’s Monetary Policy Committee’s (MPC) decision later in the month when they come to set interest rates.

Bank base rate has remained unchanged for the past 29 months and the MPC seem to be prepared to let inflation continue above target hoping that low interest rates will help to stimulate the fragile economic recovery.

The Bank of England said last week that they still believe inflation will fall back closer to target next year.

Rail fairs

The July inflation figures were keenly awaited by all those who use the UK’s rail network.

Under the new formula fairs will be able to rise by up to RPI plus an additional 3%, meaning that they could go up as much as 8% next year.

At a time when petrol prices remain stubbornly high this is bad news for commuters, many of whom are already being hit with other price rises.