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UPDATE 1-UK inflation unexpectedly steady at 1.8 pct in July

Published 08/18/2009, 04:52 AM
Updated 08/18/2009, 04:54 AM
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(Updates with reaction, comment, details)

LONDON, Aug 18 (Reuters) - British consumer price inflation unexpectedly held steady in July, official data showed on Tuesday, confounding expectations for another fall due to upward effects from computer games, DVDs and furniture prices.

The Office for National Statistics said consumer prices were unchanged on the month in July, keeping the annual rate at 1.8 percent.

Analysts had predicted a further easing below the Bank of England's 2 percent target to 1.5 percent and sterling shot up around half a cent against the dollar and government bond prices fell after the data.

The broader measure of RPI inflation -- on which many wage deals are based -- also held steady on the month, taking the annual rate up to -1.4 percent in July from -1.6 percent in June. Analysts had predicted a reading of -1.7 percent.

Inflation has repeatedly surprised on the upside in recent months despite the worst recession for decades but the central bank still expects the CPI rate to fall below 1 percent this year.

Most analysts expect monetary policy to remain loose for some time to come given ongoing concerns about the sustainability of any economic recovery.

"The Monetary Policy Committee is going to concern itself with medium-term factors -- the prospects for a recovery -- rather than short-term inflation dynamics," said David Page, economist at Investec.

The chief upward impact on CPI came from the recreation and culture sector, specifically the prices of computer games, DVDs and CDs.

There was also upward pressure from furniture prices because of less aggressive discounting in the July sales but the ONS said this was probably a result of prices not going up as steeply as they usually do in June.

Clothing and footwear prices also had a small upward impact while the chief downward influence came from food and non-alcoholic drink prices.

"CPI has proved to be a bit more sticky than we thought it would be," said George Buckley, economist at Deutsche Bank.

But he said the rate would fall in August and September as sharp rises in energy prices from a year ago drop out of the equation.

"Base effects alone that will take inflation possibly down to around 1 percent in a couple of months' time," he said. (Editing by Mike Peacock)

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