A significant announcement regarding inflation is instantly taking pressure off the Bank of England and its Monetary Policy Committee.  The Office for National Statistics has released data indicating a decrease in the inflation rate has taken place from May’s 4.5% to June’s 4.2%.  The decrease is unexpected in the eyes of many economists.

Scott Corfe, economist at the Centre for Economics and Business Research, says today’s announcement will take some pressure off the Bank of England, which has faced criticism for being too complacent over the issue of inflation, amidst ongoing concerns about the Bank losing credibility over its commitment to a 2.0% central target for CPI annual growth.

He says: “Still, inflation hawks will continue to point to the fact that inflation remains over double the Bank’s central target and that there are gas and electricity price rises in the pipeline later this year, which could push price growth back up.

“The latest economic data continues to paint a bleak picture for the UK economy; big brand retailers have announced shop closures and profit warnings, while the latest Markit/CIPS purchasing managers’ index data continue to point towards lacklustre growth.

“The preliminary estimate for GDP growth in Q2 2011 is likely to be extremely weak and, in our view, this gives the Bank of England more than enough rationale for keeping interest rates on hold this year.

“Cebr expect inflation to drop sharply in 2012 as the effects of January’s VAT rise drop out of the annual comparison and commodity prices show signs of stabilising - giving the Bank of England room for keeping monetary policy looser for longer.”