U.K. Inflation Eases Unexpectedly in June

By Wiktor Szary and Jason Douglas Features Dow Jones Newswires

U.K. consumer inflation slowed unexpectedly in June, data showed Tuesday, offering a tentative sign that a lengthy squeeze on households since last year's Brexit vote may be easing slightly.

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Annual price growth slowed to 2.6% in June, the Office for National Statistics said. This was significantly below the forecast of analysts polled by The Wall Street Journal, who expected it to hold steady at May's near four-year high of 2.9%.

The June slowdown in inflation was driven largely by falling petrol and diesel prices, government statisticians said, though the price growth rate remained higher than in the recent past and firmly above the Bank of England's 2% target.

But other economic indicators suggest that price growth, which accelerated sharply in the wake of the pound's Brexit-related depreciation last year, may be tailing off.

Growth in prices of raw materials purchased by manufacturers has been slowing steeply since the beginning of this year, with the annual rate dropping by 10 percentage points in the space of six months, to 9.9% last month.

The core inflation rate, which excludes the most volatile products such as petrol, food and alcohol, also saw a visible annual drop, from May's 2.6% to 2.4% in June.

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A potential slowdown in the rate of inflation would be welcomed by the U.K. government, which has come under pressure over declining living standards just as it began to negotiate Britain's exit from the European Union.

British consumers have been feeling the squeeze from rising prices since June's Brexit vote caused a sharp fall in the pound. Wage growth hasn't kept pace with inflation. The economy slowed in the first quarter as households retrenched.

U.K. households suffered the longest sustained decline in disposable income in over four decades in the nine months through March, last month's data showed, highlighting the scale of the squeeze.

BOE officials are divided over whether to raise interest rates to bring inflation back to their 2% goal. June's slowdown may ease the immediate pressure to raise borrowing costs but officials have signaled that a rate increase may nevertheless soon be needed as long as growth holds up.

Write to Wiktor Szary at Wiktor.Szary@wsj.com and Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

July 18, 2017 05:08 ET (09:08 GMT)