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Economy

Inflation slows to 2% in July

Downward contributions were largely offset by transport which was up by 0.85 percentage points - the largest contribution from the division since November 2011

Inflation slowed to 2% in July down from 2.5% the previous month, according to the latest figures from the Office of National Statistics (ONS).

It found that clothing and footwear, and a variety of recreational goods and services made the largest downward contributions to the change, with inflation now hitting the Bank of England’s inflation target.

ONS added that prices usually fall between June and July because of the summer sales but the seasonal patterns have been influenced by the timing of lockdowns since the onset of the coronavirus pandemic.

The inflation rate was also brought down by downward contributions of restaurants and hotels arising from prices rising in 2021 by less than in 2020 for restaurant and café meals and drinks.

Elsewhere within the restaurants and hotels division, there was a small upward contribution from accommodation services, where prices, overall, rose between June and July this year, compared with a fall a year ago.

However, the downward contributions were largely offset by transport which was up by 0.85 percentage points – the largest contribution from the division since November 2011.

Within transport, the ONS said the movements have been caused mainly by changes in the price of motor fuels. Motor fuels made a downward contribution to the 12-month rate between March 2020 and February 2021, before the contribution turned positive in March 2021 and subsequently increased to 0.41 percentage points in June 2021. It has eased in July to 0.36 percentage points.

Average petrol prices stood at 132.6 pence per litre in July 2021, compared with 111.4 pence per litre a year earlier. The July 2021 price is the highest recorded since September 2013. In comparison, the UK was coming out of the first national lockdown at this point last year and petrol prices were starting to recover after a period of reduced demand.

Commenting on the figures, Ian Warwick, managing partner at Deepbridge Capital, said: “While inflation may have slowed slightly to fall within the Bank of England’s target of 2% this does not mean that rates won’t pick up over the coming months.

“Many early-stage businesses will be thriving in the recently reopened economy, but they will continue to watch the debate around the decision on a subsequent rise in interest rates very closely as this will directly impact how much they are able to borrow at a crucial time.”

He added: “With inflationary pressure continuing it raises the question of exactly how long the Bank can hold interest rates at current levels before it is forced to step in, subsequently causing a problem for growing, early-stage companies who require access to funding as we focus on economic recovery.

“It therefore remains critically important that scale-up businesses, particularly in high-growth sectors such as digital technologies and life sciences are supported as they will be at the very heart of economic growth as we create an economy fit for the 21st Century.”

 

 

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