Inflation shrugs off the Brexit effect - for now

The UK is dodging a Brexit-inspired surge in inflation so far, official figures showed today — giving the Bank of England room to cut rates even lower if needed.

The Consumer Price Index — the Bank’s official benchmark of the cost of living — surprisingly stayed at just 0.6% in August, defying expectations for an increase following the 10% slump in sterling following the vote to leave the European Union.

Inflation refused to budge as lower prices for clothing, hotels and wine offset an upward effect from fuel, food and airfares, the Office for National Statistics said.

Clothing and footwear prices — which retailers have slashed after a dire start to summer — were down 1.2% on last year, the lowest for six years.

The pound edged lower against the dollar and the euro following the figures. Threadneedle Street warned in August’s inflation report that upward pressure on prices following the vote would push CPI above its 2% target.

But the central bank — making its latest decision on Thursday — said policymakers still expected to cut rates again later this year, potentially to a new record low of just 0.1%.

“August’s inflation undershot the Monetary Policy Committee’s 0.8% forecast in last month’s inflation report, so today’s release increases the likelihood that the Committee follows through on its guidance and cuts interest rates once more this year,” Pantheon economist Samuel Tombs said.

Early signs of price pressure further in the pipeline were however signalled by further ONS data on producer prices, which showed the biggest jump in manufacturers’ input costs since December 2011.

Prices charged at the factory gate rose by just 0.8%, less than forecasted, though still the biggest increase since January 2014.

“Raw material costs have risen for the second month running, partly due to the falling value of the pound, though there is little sign of this feeding through to consumer prices yet,” ONS statistician Mike Prestwood said.