UK inflation slows more sharply than expected to 2 per cent in July

British inflation fell to the Bank of England’s 2 per cent target last month in an unexpectedly sharp slowdown that economists said was most likely a blip as the reopening of the economy after lockdown drives prices higher.

Economists polled by Reuters had expected Wednesday’s official data to show a 2.3 per cent rise in consumer prices in July following a 2.5 per cent rise in June.

Sterling showed little reaction to the figures as investors judged they were unlikely to alter the rising trend for inflation and would not sway Bank of England policymakers much.

Earlier this month the BoE said it expected to tighten monetary policy moderately over the next three years.

July’s slowdown in inflation reflected a jump in prices in the same month last year when Britain’s economy was emerging from its first coronavirus lockdown.

Prices of clothing and footwear and computers, games and toys also dragged on the rate of price growth last month, the Office for National Statistics said.

“The fall in year-on-year inflation last month masks the strength of inflationary pressures currently within the UK economy,” Yael Selfin, chief economist at KPMG UK, said.

Earlier this month the BoE said it expected inflation to jump to 4.0 per cent around the end of the year, which would be a decade high. But the BoE stuck to its view that the acceleration of inflation would prove to be temporary.

“We see inflation falling back to around 2 per cent at the end of next year as production facilities expand, requiring only minimal tightening by the Bank of England in the short term,” Selfin said.

As in earlier months, Wednesday’s figures showed second-hand cars were a big driver of inflation in July - a phenomenon also seen in the United States.

Global shipping problems, tight supplies of semiconductors and shortages of some goods such as motor vehicles have contributed to rising inflation in many countries.

The ONS data showed signs of continued inflation pressure in prices paid and charged by factories.

Output costs rose in annual terms by the most in nearly 10 years, increasing by 4.9 per cent compared with July last year. Input costs also rose by more than expected, jumping by almost 10 per cent.

Meanwhile the Dow futures fell on Wednesday as renewed fears about the pace of a post-pandemic recovery dented demand for economically senstive sectors and sent investors to the perceived safety of technology-related stocks including Apple and Amazon.com.

Bank stocks JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co fell as much as 0.2%, a day after the S&P 500 logged its worst day in about a month on the back of a bigger-than-expected fall in US retail sales.

After six straight months of gains for the S&P 500, trading on Wall Street’s main indexes has been more volatile in August - a seasonally weak period for financial markets - as concerns about slowing US growth and the spread of the Delta variant took the shine off a solid corporate earnings season.

Focus on Wednesday will be on the minutes of the Federal Reserve’s last policy meeting, with investors looking for insight into the central bank’s debate over when to end its pandemic-era emergency programs.

Oil stocks Exxon Mobil, Schlumberger NV and Occidental Petroleum were up between 0.3 per cent and 1.1 per cent, tracking crude prices higher.

The S&P energy index has fallen 4.4 per cent in the past four sessions amid fears of slowing global growth.

Amazon, Apple and other heavyweight tech stocks Google-owner Alphabet Inc and Tesla Inc rose between 0.2 per cent and 1.2 per cent.

The stocks had led Wall Street’s recovery from its coronavirus lows last year as investors flocked to names seen to benefit from higher demand during widespread lockdowns.

Lowe’s Cos Inc rose 4.3 per cent after it forecast full-year sales above estimates on a rise in spending from builders and handymen getting back to housing projects.

Target Corp, on the other hand, slipped 1.1 per cent despite beating analysts’ estimates for same-store sales. The retailer’s stock has jumped about 44 per cent year-to-date.

Earnings reports from online brokerage Robinhood Markets Inc, chipmaker Nvidia Corp, network gear maker Cisco Systems Inc, lingerie brand Victoria’s Secret & Co and Bath & Body Works are due after market close on Wednesday.