UK Shop Prices Fall, Reinforcing Static Interest Rate Outlook
The UK Shop Price Index declined in June, with the pace of retail inflation down to 1.5 percent from 1.8 percent in the previous month according to a report from the British Retail Consortium. BRC director general Stephen Robertson said “low and stable inflation appears likely for the rest of the year [with] the fluctuations in commodity costs and exchange rates over the past 18 months [having] now fed through.” Stevens added that “in the face of weak demand, retailers will continue to use widespread discounts and promotions. But, given their thin margins, there will be little scope to absorb next year’s [value-added tax] increase. This will put significant pressure on inflation from January onwards.” The Bank of England has long justified a static monetary policy despite a sharp upswing in headline inflation since the beginning of the year, saying the increase is driven by temporary factors and will be unwound with time, with today’s release seemingly reinforcing this scenario and hinting the central bank will remain on hold again when rates are announced later this week.
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