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UK inflation rises for first time in 2018, London house prices weakest since 2009

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08/15/2018 | 10:33am CEST

LONDON, Aug 15 (Reuters) - Britain's inflation rate picked up for the first time this year in July, leaving many British households still feeling squeezed by prices that are still rising at about the same pace as their salaries.

Official data also underscored the weakness seen in the country's property market since the 2016 Brexit vote with house prices rising at their slowest pace in almost five years while prices in London fell at their fastest pace since 2009.

Overall consumer price inflation rose an annual rate of 2.5 percent in July after holding at 2.4 percent in each of the previous three months, the Office for National Statistics said, in line with economists' forecasts in a Reuters poll.

It was the first time since November last year that inflation gained pace in annual terms, showing how slow the recovery in spending power is for many households.

On Tuesday, official data showed average earnings, including bonuses, rose by an annual 2.4 percent in the three months to June, extending a long run of pay increases way below their pre-financial crisis levels.

When the Bank of England raised interest rates for only the second time since crisis earlier this month, it forecast that inflation would rise to 2.6 percent in July before settling back.

The central bank expects inflation will drift down to just above its 2 percent target in two years' time as it gradually raises borrowing costs. But many private economists think inflation will prove to be weaker than the BoE is predicting.

The CPI hit a five-year high of 3.1 percent in November, when the inflationary effect of the pound's tumble after the Brexit vote reached its peak.

Wednesday's official data showed rising prices for computers games -- which are often volatile -- and transport fares pushed up annual inflation in July.

Some of those increases were offset by falls in the price of clothing and the removal of initial charges for investment in some unit trusts.

The ONS figures suggested there was some pressure in the pipeline for consumers.

Among manufacturers, the cost of raw materials - many of them imported - was 10.9 percent higher than in July 2017, the biggest rise in more than a year, reflecting a more than 50 percent jump in oil prices over the period.

Economists polled by Reuters had expected input prices to rise by 10.4 percent.

Manufacturers increased the prices they charged by 3.1 percent, weaker than June's 3.3 percent rise but stronger than the consensus forecast of 3.0 percent in the Reuters poll.

The ONS said house prices in June rose by an annual 3.0 percent across the United Kingdom as a whole compared with 3.5 percent in May, the weakest increase since August 2013. Prices in London alone fell by 0.7 percent, the biggest fall since September 2009, during the global financial crisis.

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