U.K. Inflation Unexpectedly Slows; Clothing Drops

U.K. inflation unexpectedly fell to its lowest in 2 1/2 years in June as clothing prices plunged, helping to vindicate the central bank’s increase in emergency stimulus this month. Consumer prices rose 2.4 percent from a year earlier, the least since November 2009 and down from a 2.8 percent gain in May, the Office for National Statistics said today in London. No change in the rate was forecast, according to the median of 27 estimates in a Bloomberg News survey. From May, prices fell 0.4 percent, the biggest June decline since records began in 1996. The Bank of England added 50 billion pounds to its asset- purchase program this month as falling inflation gave policy makers scope to spur an economy struggling to emerge from its second recession since 2009. The inflation figures offer some respite for consumers who have seen their wages eroded by soaring energy prices. “We expect consumer-price inflation to be down to around 2.2 percent by the end of 2012 and to dip below 2 percent in 2013,” said Howard Archer, an economist at IHS Global Insight in London. “This should provide much-needed help to the economy by easing the squeeze on consumers’ purchasing power. It would also facilitate further quantitative easing by the Bank of England should the economy fail to improve.” The pound extended its decline against the dollar immediately after the data before rebounding. It traded at $1.5634 as of 9:37 a.m. in London, little changed from yesterday. Government bonds pared their decline, leaving the yield on the 10-year gilt up 1 basis point at 1.506 percent. Clothes Prices Inflation eased last month as clothing and footwear prices fell 4.2 percent, the biggest June decline on record. The wettest June since records began in 1910 -- and the coolest since 1991 -- forced retailers to discount prices, the statistics office said. There were also downward pressures on inflation from cheaper diesel and gasoline prices as well as food and non- alcoholic drinks, particularly meat prices. Core inflation, which excludes alcohol, food, tobacco and energy prices, slowed to 2.1 percent from 2.2 percent in May. Retail-price inflation, a measure used in wage negotiations, moderated to 2.8 percent from 3.1 percent. Inflation based on retail prices excluding mortgage-interest payments also cooled to 2.8 percent from 3.1 percent.