British inflation rose unexpectedly in July for the first time in four months. Figures from the Office for National Statistics show the Consumer Price Index rose 2.6% in July, compared with 2.4% in June. Economists expected inflation to stay at 2.4%. Airfares rose by 22%, the biggest July increase since 2004, while clothing price reductions were smaller than expected as sales began a month early.
Unemployment fell by 46,000 to 2.56 million in the three months to June due to the temporary ‘Olympic effect’. Firms created 130,000 new jobs during the period, with the greatest gains in London. Youth unemployment remains above one million, however, with young people facing the bleakest jobs market in nearly 20 years.
Minutes of the Bank of England’s Monetary Policy Committee meeting earlier this month show all nine members voted to keep interest rates on hold.
What the commentators said:
The unexpected rise in inflation is “disappointing”, but is also “just a temporary blip”, said Vicky Redwood at Capital Economics. The near-term inflation outlook has worsened due to the rise in petrol and agricultural prices. However, it “still looks likely” to fall below its 2% target in the next two to three months as we reach the anniversary of last year’s energy price increases. The weak economy will push core price pressures down further, keeping inflation very low in 2013.
It’s important “not to read too much” into one month’s numbers, agreed Howard Archer at IHS Global Insight. Early retail discounting caused a larger than expected fall in June and bigger than expected rise in July. The “overall trend” for inflation remains down. But it may take longer to fall as higher oil and grain prices could raise food prices. Lack of growth remains a bigger issue and the Bank of England may well implement £50bn more quantitative easing, probably in November.
Britain’s economic policy is like “the Olympic park with no athletes”, said Simon Jenkins on Guardian.co.uk. The Bank of England has injected over £325bn, but it is just “sitting in a bank”. It needs an “inventive genius” like Danny Boyle, “who can blow £60m in just three hours of happiness”. Pay £1,000 into every bank account this autumn, “with an order to spend it before Christmas”.