UK Inflation Rises to 0.5% in June, Pound Increasing Against Dollar

UK inflation has risen in June to 0.5%, a leap of 0.2% from the figures recorded for May, according to the Office of National Statistics (ONS), who said that this rise can be mainly attributed to rises in air fares, prices for motor fuels, and a variety of recreational and cultural goods and services.

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These upward pressures were partially offset by falls in the price of furniture, and furnishings and accommodation services, the 0.5% figure matches prices in March this year, but is higher than the 0.3% which inflation has been pegged at for the rest of this year.

Year on year, the consumer prices index increased by 0.5% in June this year, in comparison to the corresponding month a year ago.

So far in 2016, the largest downward pull on inflation comes from prices for food and non-alcoholic beverages, additionally there also continues to be a downward pressure from transport prices, although this has eased during this year, upward pressures have come most significantly from restaurant and hotel bills.

Due to the decision to leave the European Union, the markets may not take this figure as seriously as previous inflation data, as they might not believe that it represents a proper gauge of where UK prices really are.

The pound reacted to the inflation figures by increasing against the dollar, as the GBP/USD rate was over $1.32, but then slipped backwards to $1.3168, post ‘Brexit’ uncertainty continues to haunt sterling, despite the British currency strengthening last week after the appointment of Theresa May as the Prime Minister, and the Bank of England unexpectedly holding interest rates at 0.5%.

House Prices Rise In 2016

The ONS have also revealed that house prices in the UK have increased by 8.1% for the year up to May, in what they believe is a continuation of the strong growth in house price since the latter part of 2013.

Prices in the housing market are not too far behind pre 2008 financial crash levels, where the value of a dwelling had increased by 10.6% in May 2007 year on year.

The average price of a house is now £211, 230, well above the median total in the immediate aftermath of the recession of £154,452.

However, reports show that real estate price in the UK starting to fall post Brexit.

Fund Manager Warns Against Bank of England Polices

Peter Toogood, investment director of The Adviser Centre at growing London based fund manager City Financial, has said that “In response to Brexit, the Bank of England is tempting markets with the prospect of still lower interest rates and more Quantitative Easing. The ECB is still at full throttle on the printing presses, while the US keeps delaying the timing of further interest rate rises, and Prime Minister Abe in Japan is looking for more monetary and fiscal easing against a backdrop of a stubbornly weak economy.“

Toogood does not believe that their actions will be any more successful this time around, and that years of monetary stimulus have crushed the prospects for future returns.

Global stimulus has added to the global debt burden, which will be difficult to reduce in a slower growth world, while low interest rates punish savers, crucify pension funds with liabilities to meet, stop creative destruction in the corporate sector and create asset bubbles everywhere, he added.