London: UK inflation slowed in August as prices for furniture and clothes rose less than a year earlier and increases in gas and electricity weren’t repeated.

Consumer prices rose 2.5 per cent in August from the same month in 2011, compared with 2.6 per cent in July, the Office for National Statistics said on Tuesday in London. That matched the median forecast of 32 economists in a Bloomberg News survey. From the previous month, prices advanced 0.5 per cent.

While the Bank of England has forecast that inflation will continue to ease toward its 2 per cent target, upward pressures have emerged as oil costs increase and a drought in the US pushes up food-commodity prices. That may open divisions among policy makers over whether they should expand their stimulus programme again.

“The rise in oil prices and food commodities presents some risks for headline inflation in coming months, but with the weak economy implying only limited corporate pricing power, we still expect inflation to fall back to 2 per cent by the end of the year,” James Knightley, an economist at ING Bank NV, said in a research note. “The Bank of England will have room to implement more quantitative easing.”

The pound traded at $1.6240 against the dollar as of 10.03am in London, little changed from Monday.

Energy bills

The biggest downward impact on the annual inflation rate in August was from furniture and household equipment, as well as clothes, and housing and household services. Within household services, domestic gas and electricity bills were unchanged in August, while they rose 1.7 per cent and 1 per cent respectively in the same month a year earlier.

The biggest upward effect on inflation was from transport costs, with gasoline rising 3.5 pence a litre from July. That compares with a 0.9 per cent monthly increase a year ago.

Core annual inflation, which excludes alcohol, food, tobacco and energy prices, slowed to 2.1 per cent in August from 2.3 per cent in July, the statistics office said. Retail-price inflation, a measure used in wage negotiations, slowed to 2.9 per cent from 3.2 per cent, as did the RPI measure excluding mortgage-interest payments.

In a separate report on Tuesday, the statistics office said UK house prices rose 2 per cent in July from a year earlier.

Extremely challenging

While UK inflation is cooling, it continues to outpace wage growth, undermining consumer spending. Data last week showed that annual wage growth in July was 1.5 per cent. Michael Sharp, Chief Executive Officer of Debenhams Plc, the UK’s second-largest department-store chain, said on Tuesday the company is operating in “extremely challenging market conditions”.

The Bank of England will tomorrow release the minutes of this month’s policy meeting, showing how officials voted when they kept their bond-purchase target on hold at £375 billion (Dh2.2 trillion or $609 billion). Policy makers Spencer Dale and Ben Broadbent last week highlighted inflation risks, with Dale cautioning against “Pavlovian” calls for more stimulus. In contrast, their colleague David Miles said loose policy is needed and it’s “right that it is still being moved further in that direction.”

The central bank increased the bond-purchase target by £50 billion in July in a programme that’s due to run until early November.