UK inflation rate drops to 2.6%, but wage squeeze continues – business live

The cost of living in Britain rose at a slower rate in June, but is still rising faster than wages

The pound is still on the slide after the weaker than expected inflation figures suggested a Bank of England rate rise could be some way off. Against the dollar, sterling is now down 0.3% at $1.3016 and 0.9% lower against the euro at €1.1265. FXTM research analyst Lukman Otunuga reckons the pound could fall further:

The fact that sterling sharply depreciated across the board on Tuesday, after British inflation rates unexpectedly dropped to 2.6% in June, continues to highlight how the currency has become increasingly sensitive to monetary policy speculation. Price action suggests that those who were heavily reliant on the possibility that higher rates would support sterling further were left empty-handed, as deceleration in inflation eroded expectations of a UK rate increase in 2017. Although the Bank of England has adopted a hawkish tone in recent weeks, today’s fall in inflation is likely to ease pressure on the Bank of England taking action, consequently keeping hawks at bay…

Investors should keep in mind that the fundamentals behind sterling’s woes remain intact, with sellers potentially exploiting rate hike speculations and dollar weakness to install fresh rounds of selling. From a technical standpoint, a decisive breakdown and daily close below 1.3000 should encourage a further decline towards 1.2850.

Time for a recap, for those of just tuning in.

UK inflation fell unexpectedly in June for the first time in nine months as lower fuel prices provided some respite for cash-strapped consumers.

CPI #inflation fell by more than expected in June, to 2.6%. Key downward drivers were falling prices of fuel and recreation & culture.

“The government must stop this cost of living squeeze.

Many working people are caught in a vice as rising prices crush their pay. Ministers claim they are listening to struggling families. But now is the time to prove it. Britain needs a pay rise across the public and private sector.”

“While it is encouraging that inflation was lower this month, we appreciate that some families are concerned about the cost of living. That’s why we have introduced the national living wage, which is helping to boost earnings by £1,400 a year, and why we’ve cut taxes for millions of people to help them keep more of what they earn. We are also increasing our free childcare offer to help 400,000 working parents.”….

Related: Lower fuel prices slow pace of UK inflation

Our pay packets aren’t keeping up with rising prices despite the UK’s unemployment rate reaching its lowest level since 1975. This is tightening the squeeze on UK households, which is bad news for an economy that relies on confident consumers spending on goods and services.

“Despite a drop in the headline rate of inflation, many families will still be facing the same relentless pressure to make ends meet. The cost of food, household goods and furniture all became more expensive in June and with wage growth still flat those at the bottom will continue to turn to credit or rapidly deplete savings just to keep food on the table.

Inflation lower than expected at 2.6%. Sterling falls in response.

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