LONDON: British 12-month inflation slowed to 1.8 per cent in June, dropping under the Bank of England's 2.0 per cent target for the first time in almost two years, official data showed Tuesday.

"Consumer Prices Index (CPI) annual inflation fell to 1.8 per cent in June, down from 2.2 per cent in May and the first time it has fallen below the government's 2.0 per cent target since September 2007," the Office for National Statistics (ONS) said in a statement.

It added: "The largest downward pressure on the CPI came from food and non-alcoholic drink prices, which fell between May and June this year, but increased over the same period last year."

The Bank of England is tasked by the government with keeping British annual inflation close to a 2.0 per cent target. CPI inflation increased by 0.3 per cent in June on a monthly basis from May, the ONS added.

The data compared with economists' forecasts given by Dow Jones Newswires for an annual rise of 1.9 per cent and monthly gain of 0.3 per cent.

"June's UK consumer prices figures confirm that inflation is still on a firm downward trend," said Capital Economics economist Jonathan Loynes.

CPI annual inflation had peaked at 5.2 per cent in August 2008, but has plunged largely because of slumping crude oil prices, which have since clawed back some ground.

"Despite the recent improvement in the UK economy and marked overall firming of oil prices ... consumer price inflation still seems likely to dip under 1.0 per cent later this year and to remain under the 2.0-per cent target level for an extended period," warned IHS Global Insight economist Howard Archer.

"This is due to increased spare capacity, reduced wage growth, companies' limited pricing power through the supply chain and a likely ongoing need for many retailers to price attractively to get consumers to spend."

He added: "However, we believe that consumer prices are unlikely to move into deflationary territory."

The ONS also revealed on Tuesday that the Retail Prices Index (RPI) annual inflation rate, which includes the cost of home loans, stood at minus 1.6 per cent in June.

That was the lowest level since record began in 1948 and compared with minus 1.1 per cent in May.

"In many respects, this is artificial deflation, as it is very much the consequence of sharply lower mortgage interest payments compared to a year ago," added Archer.

The RPI rate had turned negative in March for the first time in almost 50 years. The news had sparked renewed fears of deflation – the term for a prolonged period of falling consumer prices.

However, for deflation to take place, inflation as measured by CPI would have to be negative for a number of months.


- AFP/so