August 13, 2013 / 8:34 AM / 6 years ago

UK inflation edges down in July but property prices pick up

Customers shop in the F&F clothing department at a Tesco Extra supermarket in Watford, north of London August 8, 2013. REUTERS/Suzanne Plunkett

LONDON (Reuters) - British consumer price inflation eased slightly in July, helped by lower airfares and clothing costs, but there were further signs of price pressures building in the property market.

The consumer price index fell to 2.8 percent last month, down from 2.9 percent in June, and in line with economists’ forecasts, official data showed on Tuesday.

However house prices - which do not feed directly into the CPI measure - are rising rapidly. The Royal Institution of Chartered Surveyors’ monthly survey pointed towards the biggest rise in house prices since 2006, and official data showed house prices rising faster than inflation at an annual 3.1 percent.

Prices in the capital - which sometimes act as a leading indicator for the rest of the country - rose by 8.1 percent.

Britain’s central bank targets CPI of 2 percent, but last week pledged to keep interest rates at a record low at least until unemployment falls to 7 percent, as long as this does not threaten inflation expectations or financial stability.

While the BoE’s new boss, Mark Carney, has played down concerns about rising house prices, they could potentially force the central bank to raise interest rates earlier than planned if they appear to be getting out of control.

July’s fall in inflation came from airfares, lower clothing prices and a fall in the cost of recreation and cultural goods, but higher oil prices pointed to pipeline pressures to come.

Factory gate inflation rose at its fastest pace in six months, and further rises look set to come, with manufacturers crude oil input costs rising at their most rapid rate in over a year.

The Bank of England is one of the few major Western central banks facing the problem of high inflation. However, it is confident that most of the upward pressure is not domestically generated and forecast last week that inflation would fall below target in the third quarter of 2015.

Reporting by David Milliken and Christina Fincher

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