U.K. Inflation Cools, But House Prices Race Ahead | Pound Ridge Homes

The annual rate of inflation in the U.K. fell in July and is likely to continue cooling, but house prices are heading in the opposite direction, stoking fears of a new housing market bubble.

The Office for National Statistics said annual inflation slowed to 2.8% in July from 2.9% in June, aided by smaller rises in prices for items including airfares and clothing than a year earlier.

Economists said inflation is likely to continue falling this year and next, easing pressure on household budgets that have been squeezed for several years as wage growth has failed to keep pace with price increases.

Slowing inflation should help put a fledgling recovery in the U.K. economy “on a firmer footing,” said Rob Wood, chief U.K. economist at Berenberg Bank.

Economists added the anticipated slowdown in inflation toward the Bank of England’s 2% annual target should help Bank of England Gov. Mark Carney stick with a pledge to keep the central bank’s benchmark interest rate at a record low of 0.5% until joblessness falls to 7%, unless inflation looks poised to accelerate.

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