Store discounting cuts inflation

Discounts on furniture helped to pull inflation lower

Discounts by furniture stores helped to drag UK inflation lower in July, official figures have shown.

The Consumer Prices Index (CPI) fell to 1.4% in July from 1.6% in June, leaving it well below the Bank of England's target of 2.0%.

The Office for National Statistics (ONS) said the underlying rate of RPI inflation fell to 2.2% from June's 2.3%

However, the headline rate of RPI - which includes mortgage interest payments - remained unchanged at 3%.

The Bank of England raised rates to 4.75% last week in order to keep a check on inflationary pressures in the economy.

Analysts expect the base rate to hit 5% by the end of the year, but said July's inflation numbers reduced the chances of another rate rise next month

"It (the CPI data) makes a back-to-back rise in September extremely unlikely," Geoffrey Dicks of the Royal Bank of Scotland said.

Cheaper calls, dearer holidays

Experts suggested that price discounting by furniture stores could suggest that the booming housing market is finally slowing.

Elsewhere, goods prices were also "pegged back by food" the ONS added - with prices dropping in July compared with a year ago.

The ONS added that cut-price tariffs for mobile and landline telephone services had also pushed inflation lower.

But, recreation and cultural activities helped offset the falls - with cable TV subscriptions increasing, as did the price of package holidays in Europe.

Meanwhile, the ONS added that factors not included in the new measure of inflation had moved higher.

Mortgage payments increased as lenders passed on the recent interest rate rises to borrowers, while house price growth remained strong.

The ONS said these factors helped to keep the headline Retail Price Index (RPI) rate of inflation - which includes mortgage interest payments - unchanged at 3%.

Wage growth

The strength in headline inflation could be beginning to feed through to pay deals, according to a report by pay analysts Incomes Data Services (IDS).

Average settlements in the three months to July were 3%, in line with headline RPI, IDS found, with settlements in the private sector beating those in the public sector.

Construction workers won the best deals, IDS said, with increases ranging from 4.15% to 8%.

IDS also noted that pay deals in the retail sector were already being influenced by the planned increase in the minimum wage to £4.85 an hour, which is due to come into effect in October.