-Howard Archer, IHS Markit
Inflation in the UK rose during the 'Brexit month' year-on-year, while the core CPI reading showed a fresh climb. The cost of living in the UK rose 0.2% over the month in June while rising 0.5% in the final month of Q2, the report from ONS showed, while markets had penciled in a 0.3% rise of the indicator in the reported month. Meanwhile, excluding volatile food and energy prices, the so-called core inflation reading revealed an improved reading, rising 1.4% in June. The main drivers of the monthly move were transport and recreation, which both contributed 0.1 percentage points to the 0.15% overall change. Air fares were up 10.3% between May and June 2016, compared to 0.3% last June. The core CPI has been hovering around this level since the beginning of the year, highlighting that the country's inflation probably needs additional stimulus in order to reach the BoE's target level of 2%, especially after the post-Brexit shock on financial markets. At the meantime, a separate report showed that UK input producer prices increased 1.8% for June after a 2.6% gain previously and well above the consensus expectations of 1.0% increase. The annual decline slowed sharply to 0.5% from 4.4% previously and should turn positive next month. The scope for a loose monetary policy will be significantly reduced if output prices accelerate over the next few months.
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