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UK Inflation down to 1.6% due to shift in summer sales timing - BNP Paribas

FXStreet (Łódź) - Raymond Van Der Putten, economist at BNP Paribas, notes that the drop in July UK inflation was caused by the change of the summer sales timing, low prices of food and beverages, weak wage growth and strong GBP.

Key quotes

"Consumer prices grew by 1.6% in the year to July 2014, down from 1.9% in June. The main reason was a shift in the timing of the summer sales."

" Also price increases for food and beverages eased due to fierce competition between supermarkets for market share."

"The moderate inflation rate is partly due the surprising weakness of wage growth."

"Also the strengthening of sterling has a dampening effect on prices. In the year to July, the pound appreciated 10% against the dollar."

"The Bank of England estimates that the
appreciation of sterling over the past year should reduce the level of UK import prices by around 6%, all else equal. To date, around half of this effect has come through."

"The Bank of England expects inflation to remain a little below 2% for the next couple of years."

"In our opinion, inflation could already reach 2% in early 2015. In this context, we expect the Bank of England to start raising Bank Rate before the end of the year."

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