In contrast to many City analysts' expectations, the Office for National Statistics (ONS) has made the surprising announcement that inflation has actually fallen in June from 4.5 per cent to 4.2 per cent. While food prices have continued to rise sharply, this has been more than counteracted by strident cuts in electronic goods as well as less drastic price reductions in toys, clothes and footwear. Such price reductions are themselves a reflection of poor retail sales in recent times.
Despite the fall in inflation, the CPI rate is still more than double the 2 per cent target set by the Bank of England. Economists see the fall in inflation as an opportunity for the UK's faltering economy to gain some momentum, particularly in light of the Bank's decision earlier in June to maintain interest rates at 0.5 per cent. However, it is suggested that despite June's fall, inflation is yet to peak, expected to reach 5 per cent or more later in the year thanks to rising commodity and energy prices.