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UK: inflation remains at 2.0% in June over one year

UK inflation rate: Consumer price inflation in the UK has remained steady at 2.0% in June year-on-year, the National Office of Statistics (ONS) said Wednesday, a moderate level allows the purchasing power of households to increase.

UK inflation rate

In June, the annual rate of price increases remained the same as in May. Food prices rose faster, and clothing prices declined less than in May, which supported inflation. In contrast, prices for gasoline, gas, and electricity rose less quickly.

“This is rather good news for consumers’ purchasing power, which has already enjoyed a rise in wages in May,” said Howard Archer, an economist at the EY Item Club.

Salaries in the country (bonuses included) grew by an average of 3.4% during the March to May period over a year, according to data released Tuesday by the ONS. The institute then estimated that the purchasing power of households had increased by 1.4% during this period, and the rate of increase in wages was much faster than inflation.

With inflation held in rather calm waters in June, the household portfolio could continue to perform well.

In addition, this 2.0% corresponds precisely to the level of price increase desired by the Bank of England (BoE) to encourage economic activity without risking overheating. The BoE could, therefore, be tempted to keep its key rate at a reduced level.

“Given the evidence to our knowledge today, it is likely that the Bank of England will keep its rates at 0.75% for the rest of 2019 and another time in 2020,” said Archer.

All this is welcome for a UK economy struggling with the caution of companies to invest in the uncertain Brexit, now scheduled for October 31 after being postponed.

The Brexit – if it takes place at the end of October – will condition the evolution of the British economy and therefore the attitude of the BoE, however.

The risk of a Brexit without an agreement between the UK and the EU – haunting the business community – has grown lately, as Boris Johnson stands out as the big favorite to become prime minister in place of Theresa May starting next week.

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