September 16, 2014 / 8:37 AM / 5 years ago

UK inflation slips back, house price growth hits seven-year high

LONDON (Reuters) - British inflation edged down last month but house price growth surged in July at the fastest annual pace since in seven years, official data showed on Tuesday.

A woman carries shopping bags as she walks along Oxford Street in central London July 25, 2014. REUTERS/Neil Hall

Consumer prices rose 1.5 percent on the year in August, the lowest increase since May, compared with 1.6 percent in July, the Office for National Statistics said.

Economists taking part in a Reuters poll had expected inflation to fall to 1.5 percent.

Compared with the previous month, the consumer price index in August was up 0.4 percent, the ONS said.

The data are unlikely to shift expectations among economists that the Bank of England will keep interest rates on hold until around the second quarter of next year.

BoE Governor Mark Carney said last week the central bank may start to raise interest rates next spring if the labour market continues to recover from the financial crisis.

Separate data from the ONS showed house prices in Britain rose 11.7 percent in the year to July. Some other surveys since then have suggested the rapid pace of house price growth has started to cool.

In London, which led house surging house price growth earlier this year, property prices rose 19.1 percent on the year, down slightly from 19.3 percent in June.

Until December last year, annual inflation exceeded the Bank of England’s 2 percent target every month since December 2009, eroding the spending power of households and making the fall in living standards a big political issue ahead of next year’s election.

However, the current eight-month run of consumer price inflation below 2 percent is the longest since a multi-year stretch which ended in May 2005.

That has helped the Bank of England to hold off on raising interest rates despite Britain’s surprisingly strong economic recovery.

The ONS said the biggest negative contributions to inflation in August were motor fuels, food and non-alcoholic beverages and furniture.

Food and non-alcoholic beverage prices fell by 1.1 percent - the steepest decline since January 2003. An ONS official attributed the fall to competition among supermarkets and the effect of cold weather in early 2013, which pushed up food prices that year.

An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, rose by 1.9 percent in August compared with the same month last year.

Data also released by the ONS on Tuesday showed that factory gate prices fell by 0.3 percent in annual terms, the steepest decline since September 2009. Economists had predicted a 0.2 percent decline.

In monthly terms, producer prices fell 0.1 percent, the fourth decline in a row and the longest such run in more than five years.

(Reporting by Andy Bruce and William Schomberg), +44 20 7542 5109

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