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UK inflation set to fall slightly

It is believed that UK inflation has fallen from 3.2% in June to 3.1% in July although this will not be enough to spare the Bank of England another letter to the UK government explaining why the level of inflation is well above the 2% target. However, the Reuters report which was used as the basis for the UK inflation figure for July saw some analysts suggesting that inflation could actually rise to 3.5% amid concerns that third-party pressure from overseas is set to push UK prices higher in the short to medium term.

There are a number of ongoing issues at the moment which include the rising price of oil, with the price of petrol set to rise in the short to medium term, and the price of wheat which is under immense pressure after the Russian authorities banned exports until the end of the year. These two factors alone could have a significant impact on the cost of living in the UK which will at some point come in to the reckoning with regards to the future direction of UK base rates.

The Bank of England has always suggested that inflation would be a secondary consideration with the economy first and foremost in their minds. However if inflation continues to cause problems then we may see a realignment of this strategy in the short term.

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