British Queen celebrates


The continued pressure on UK households will be highlighted next week when inflation figures for July are released by the Office for National Statistics.

Inflation is set to show a rise to around 4.4% on Tuesday after a short-lived decline in the rate to 4.2% in the previous month's figures.

The increase for July is part of a trend that the Bank of England expects will see inflation reach 5% by the end of the year as steep rises in electricity and gas prices come into effect.

With the UK facing a period of continued sluggish growth, the Bank then expects inflation to fall below the 2% target to 1.8% in two years time, particularly as the impact of this year's VAT increase falls out.

Tuesday's figures will be closely watched by rail travellers as July's Retail Price Index (RPI) number, which unlike CPI also includes housing costs, is the basis on which rail fares for next year are based.


The formula is RPI plus 3% and it sets the price for regulated fares which includes season tickets. RPI is set to remain at around 5%.

The bigger-than-expected fall in last month's figure reflected retailers cutting prices in response to the tightening squeeze on household incomes.

While there has been little respite on the high street, the comparative figure for July 2010 was weak and will force up this year's rate.

Victoria Cadman, an economist at Investec Securities, says lower food and petrol prices will limit the rise this month, with recent data from the British Retail Consortium showing prices fell by 0.6% in July from June.

Oil prices have also fallen, with some of the main supermarkets cutting their forecourt prices, while motoring organisation the AA indicated prices of both petrol and diesel had eased a little. If the figures come in as expected, July will be the 20th month running that CPI will have missed the Bank of England's target of 2%.


Press Association, photo by wwarby