Are higher interest rates coming soon?

The first interest-rate hike in eight years could be moving closer.

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Pick up a bargain: clothes prices have fallen

The annual rate of UK consumer price index (CPI) inflation fell back to 0% in June from 0.1% the month before, thanks mainly to lower clothing and food prices. Core CPI, which excludes volatile food and energy prices, declined to 0.8%, the weakest since 2001.

Meanwhile, the unemployment rate edged up for the first time in two years, climbing from 5.5% to 5.6%. The claimant count, meanwhile, saw the first uptick since 2012. Pay growth remained encouraging, however, rising to an annual pace of 3.2% in the three months to May. Excluding bonuses, the rate was 2.8%, a six-year high. Bank of England Governor Mark Carney said recent data had been slightly stronger than expected and the first interest-rate hike in eight years was "moving closer".

What the commentators said

Throw in solid survey data, and it looks as though the uptick in unemployment we saw this week could well be a blip, says Vicky Redwood of Capital Economics. "Surveys of employment intentions remain consistent with a decent rate of jobs growth."

While the more hawkish members of the Bank of England's rate-setting committee will probably vote for a rise in August, the rest will want to see inflation head back to the 2% target before going for dearer money, reckoned James Knightley of ING Financial Markets. Don't expect the first hike until February 2016.

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