UK CPI inflation unexpectedly holds steady at 2.6% in July - as it happened

Consumer price index stays at 2.6% despite forecasts of a rise to 2.7% in July

• US retail sales beat expectations in July
• Pound falls to one month low against the dollar after data
• German economy continues to grow but by slightly less than expected
• European markets open higher

2.05pm BST

After a quiet day for economic news on Monday, investors have had more to get their teeth into today.

The UK inflation data defied forecasts, with the consumer price index remaining steady at 2.6% in July, compared to expectations of an increase to 2.7%. Falling motor fuel prices were offset by higher prices for clothes, utilities and food.

1.58pm BST

The strengthening dollar following the US retail sales numbers has accelerated the decline in the pound. Sterling is now down 0.9% at $1.2848. Craig Erlam, senior market analyst at Oanda, said:

A rebound in retail sales in the US in July has triggered further gains in the US dollar on Tuesday, sending the greenback to its highest level in almost three weeks.

Retail sales have been very underwhelming this year which has contributed to the view that the economy isn't ready for another rate hike this year. The dollar was already relatively well bid heading into the release on the back of some hawkish comments from William Dudley on Monday and today's release is doing that no harm. Not only did the July numbers comfortably beat expectations but the June numbers were also revised higher, providing an additional boost for dollar bulls.

1.53pm BST

The strong US retail sales could portend a good third quarter economic performance, and a December rate rise from the Federal Reserve. James Knightley, chief international economist at ING Bank, said:

US retail sales figures for July are very good, rising 0.6% month on month in July versus the consensus 0.3% forecast. There were also big upward revisions from -0.2% month on month to +0.3% month on month for June.

There were broad based gains with 10 of the 13 broad retail categories reporting rising sales. This suggests the household sector is strong and in our view bodes well for a 3% GDP figure for third quarter 2017 growth. With consumer confidence at firm levels, employment continuing to rise and wages showing some evidence of picking up we remain optimistic on the prospects for consumer spending.

1.45pm BST

The dollar index is benefitting from the positive surprise in the US economic data, key resistance coming up fro DXY at 93.54 - recent high.

1.42pm BST

At the sam time as the US retail sales, there has been more positive data, with the New York Federal Reserve's Empire State business conditions jumping from 9.8 in July to 25.2 in August. This is better than the expected level of 10, and was the highest since September 2014.

1.41pm BST

The July retail sales rise was the biggest in seven months, and the figures received a boost from sales of motor vehicles.

Dennis de Jong, managing director at UFX.com, said:

President Donald Trump will be breathing a sigh of relief today after the latest data showed retail sales in the US bounced back from a disappointing couple of months to move into positive territory.

This indicates the US consumer is now choosing to spend rather than save, which bodes well for the economy's long-term growth and will put Fed chair Janet Yellen in a bullish mood.

1.32pm BST

US retail sales rose by a higher than expected 0.6% in July, while the previous month's figure was revised upwards.

Analysts had been expecting an increase of around 0.4% following two months of decline. But June's 0.2% fall was revised to a 0.3% increase.

12.58pm BST

Over in the US, retail sales are due shortly and are expected to show a slight rebound after two months of decline.

In June they fell 0.2% but analysts are forecasting a rise last month to between 0.3% and as much as 0.6%.

HSBC on US Retail Sales: Exp. a pick-up in core measures (support from online sales + restaurants). Auto dealers and gasoline likely fell

12.13pm BST

The pound is now down 0.7% against the dollar at $1.2872, while against the euro it is down more than 0.4% a1.0951. Connor Campbell, financial analyst at Spreadex, said:

Sterling turned sour this Tuesday after July's UK CPI reading fell short of analysts' forecasts.

While, at 2.6%, inflation is still troublesome - especially since wage growth is lurking around the 1.8% mark - it nevertheless wasn't as high as the expected 2.7%. More importantly, it's a decent way away from the 2.9% reading seen in May. And given that the Bank of England didn't pull the rate hike trigger at that level, they're not going to do it for anything lower, helping to explain why the pound found itself in such a bad mood once the figure was released.

11.54am BST

UK inflation may have come in lower than expected in July but it is higher than other major economies:

UK inflation remains stable at 2.6pc in July, but well ahead of 2pc target and other major western economies. pic.twitter.com/hcJnCDE3Ns

11.41am BST

More on the pound's weakness:

Trade-weighted GBP , is at its lowest level since Nov 2016. It is only 2% away from the lows made during last year's Tory Party Conference pic.twitter.com/XhWvE3u542

11.18am BST

Here's our economics editor Larry Elliott on inflation and the rail fare increases:

Rail commuters facing a steep 3.6% increase in ticket prices might find it tough to accept but there is light at the end of the tunnel for UK inflation.

Rising prices have been one of the big economic stories of the past 12 months, but for the past two months the financial markets have been surprised by the weakness of cost-of-living pressures.

Related: Rail fare increase signals light at the end of the tunnel for UK inflation

11.16am BST

The overall inflation figures may be understating the real cost of living for many people, says Simon McCulloch, director of comparethemarket.com:

The fact that inflation has stayed at 2.6% tells only part of the story and certain segments of society are feeling the effects more than others. Our research shows that household bills are increasing at twice the rate of today's inflation figure", indicating that families - a group that may be more exposed to higher energy, insurance, petrol and broadband costs as well as mortgage payments - are affected in a more acute way than the ONS's headline 2.6% figure suggests.

Whereas certain elements of the inflationary basket of goods may be remaining flat, households which are already feeling the squeeze are experiencing a period of rapid "billflation", with the average household paying out 845 a month.

11.10am BST

Even so, the pound is not acting as if a rate rise is on the cards any time soon. It is now down 0.52% at $1.2893 against the dollar - its lowest level for a month - and 0.35% lower against the euro at a1.0967.

Fawad Razaqzada, market analyst at Forex.com, said:

The pound has been largely out of favour ever since the Bank of England's last policy meeting a couple of weeks ago, where only two Monetary Policy Committee members voted for a rate rise. Given the recent rise in inflation and the general improvement in the UK economy, the markets were surprised by the BoE's dovishness. But today's release of the latest inflation data for the month of July underscores the BoE's cautious approach... the pound's immediate reaction was a swift drop.

11.01am BST

Well, it seems not everyone thinks a UK interest rate rise before long can be ruled out. Nick Dixon, Pension Director at Aegon, said:

After last month's surprise dip, inflation remains above target, although it has not continued its upward march in the way many expected. While concerns about stagnant wages, anaemic economic growth, and a reliance on cheap debt remain, sustained above-target inflation is continuing to build the case for an interest rates rise in the not-too-distant future.

Such an increase would present new challenges, and new opportunities, for those owning investments whose valuations are linked with interest rates. All asset classes feel richly valued at present so we take a cautious view in aggregate, with particular concerns around fixed interest, real estate, non-sterling assets and US equities where valuations look particularly high.

10.45am BST

The Federation of Small Businesses has called for government help for companies to deal with inflationary pressures. National chairman Mike Cherry, said:

Operating costs for small firms are now at their highest in four years. Increasing inflationary pressure has coincided with a bruising business rates revaluation and rising employment costs. Our entrepreneurs are paying themselves less and further increasing prices in an attempt to handle the strain. Four in ten small firms raised prices in response to April's National Living Wage increase.

A hike in rail fares in line with today's RPI will put further pressure on the consumer pocket, leaving all concerned with less to spend and invest. The Government should consider whether this inflationary measure is fit for purpose in the twenty-first century.

10.39am BST

One general conclusion from today's inflation figures seems to be that they confirm the Bank of England is unlikely to raise interest rates any time soon.

10.11am BST

Both measures of inflation have been rising steadily since a year ago:

10.08am BST

Here's our news story on how the rise in the retail price index will lead to higher rail fares:

Related: Commuters brace for steepest fare rise in five years as UK inflation rises to 3.6%

10.03am BST

Here's some commentary on inflation:

Headline and core CPI weaker than expected but producer price inflation a touch stronger than consensus. 1/2

1. So for the second successive month UK inflation is better than expected and pipeline inflation continues to ease too.

.2 last month year on year inflation fell in June to 2.6pc & has now held at that in July at 2.6pc which is good news for the economy

CPI remained unchanged at 2.6% in July. However the BoE expect inflation to rise further this year, peaking at around 3% in Autumn #ukmfg pic.twitter.com/77bQSgMJ3T

UK CPI @ 2.6% in July. Only 3/12 component parts (transport, recreation & communication) have fallen in last 2 mths - make up 33% of basket pic.twitter.com/H9c4SAF7Ka

Weaker than expected #UK #CPI flat (2.6%, core 2.4%), weaker than E core PPI output (2.4%) final nail in coffin of H2 #MPC rate hike: down

9.52am BST

Here's the UK Treasury's response to the inflation figures:

Although inflation is likely to start falling next year, we understand some families are concerned today about the cost of living. That is why we have given the lowest paid a pay rise through the National Living Wage and are cutting taxes for 31 million people.

9.50am BST

The pound has edged slightly lower against the dollar following the inflation data. It now stands at $1.2923, down 0.3%, as the prospects of any imminent rate rise fade further.

9.49am BST

Fuel prices fell by 1.3% between June and July 2017, the fifth successive month of price decreases, said the ONS. Over the same period last year they rose by 0.7%. There were smaller rises for a range of goods and services, but the ONS added:

The 12-month inflation rates for some of the broad groupings (namely food and non-alcoholic beverages; clothing and footwear; miscellaneous goods and services; furniture and household goods) have edged up to the highest seen for several years.

9.41am BST

This chart shows how the consumer prices index (in yellow) had been rising fairly steadily since last summer until last month's dip:

9.35am BST

The Office for National Statistics said falling motor fuel prices were offset by higher prices for clothes, utilities and food.

House prices rose 4.9% in June, said the ONS, compared to 5% in May. This is the weakest since March.

9.33am BST

The consumer price index had been expected to rise from 2.6% to 2.7%, rather than hold steady.

But it still means that living standards are being squeezed.

9.31am BST

Breaking: Britain's inflation rate has unexpectedly held steady at 2.6% in July,.

That's the consumer price index, which is the Bank of England's preferred measure when considering the level of interest rates.

9.19am BST

Another reason for the strengthening of the dollar is Monday's comment from one of the US Federal Reserve members about the prospects of further interest rate rises this year. Lee Hardman, currency analyst at MUFG explains:

The US dollar has strengthened following relatively hawkish comments from Fed Vice Chair William Dudley, who stated that he would "be in favour of doing another rate hike later this year" if the economy continues to hold up in line with his expectations. The recent softer-than-expected US inflation readings do not appear to have dampened his appetite to continue raising rates gradually as much as the market is currently anticipating.

He also signalled that market expectations for a September announcement from the Fed on when it plans to begin shrinking their balance sheet were not "unreasonable". Overall the comments should offer some support for the US dollar in the near-term but the market is likely to remain sceptical over the likelihood of another rate hike later this year at the current juncture.

9.13am BST

Ahead of the UK inflation figures, here's a list of what economists are expecting the figure to be at the year end:

Here's who's predicting what UK inflation will be at the end of this year. pic.twitter.com/T3uaFKQ7oU

9.05am BST

Markets are - just about - holding onto their early gains but Rebecca O'Keefe, head of investment at Interactive Investor, is urging caution:

The ease with which equity markets have shrugged off last week's woes is reassuring, but also a little bit frightening. Reassuring in that it confirms there is a wave of liquidity willing and actively looking for buying opportunities on any dips. Frightening in that markets appear to be utterly invincible to any threat, despite potentially stretched valuations.

It looked like the market was at a tipping point last week, but the robust rally over the past two days suggests that there are still plenty of investors who think otherwise. Trying to call the top of this market has been a fool's errand over the past few months and the weight of money supporting the market doesn't show any sign of abating.

8.26am BST

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8.19am BST

The prospect of a deal between the UK and the EU to retain the key benefits of the customs union for a period following Brexit has also done little to lift the pound. Neil Wilson, senior market analyst at ETX Capital, said:

Sterling didn't budge much at all despite signs we may be in for a smoother Brexit. There was little to no uplift so far from the proposal for Britain to have a customs union with the EU for some years after the official Brexit date in 2019.

The market is treating anything from London with due caution, rightly so given the open splits in the cabinet and precarious tenure of Theresa May.

8.15am BST

With the easing of tensions over North Korea, markets are edging higher at the open.

Ahead of the UK inflation figures, the FTSE 100 has added 0.11% while Germany's Dax opened 0.5% higher and France's Cac and Spain's Ibex are both up 0.4%.

8.09am BST

Here's World First economist Jeremy Cook on the UK inflation figures and the possible effect on the pound:

Gotta say that today's UK CPI release, unless an absolute flyer, is likely to be negative sterling. Anything on consensus or slightly above

is unlikely to prompt people to buy the pound if they believe that the Bank of England hasn't got the stomach for a rate hike and any fall

in inflation naturally takes the pressure off. Indeed, a very low number could be seen as a positive if it undoes some of the real wage pain

7.59am BST

The German economy grew by 0.6% in the second quarter, which is good news for Chancellor Merkel ahead of the forthcoming elections, even if the figure was slightly below forecasts.

The quarter on quarter rate was lower than a revised 0.7% figure for the first quarter and the forecast of a similar level for the second three months.

The quarter-on-quarter comparison (upon adjustment for price, seasonal and calendar variations) shows that positive contributions came from domestic demand. Final consumption expenditure of both households and general government increased markedly... According to provisional calculations, the development of foreign trade, however, had a downward effect on growth because the price-adjusted quarter-on-quarter increase in imports was considerably larger than that of exports.

The German economy continues its strong performance with another above-trend growth rate of 0.6% QoQ in 2Q 17.

Even in its ninth year, the German economic recovery is still going strong. GDP growth in the second quarter came in at 0.6% QoQ, from a slightly upwardly revised 0.7% QoQ in the first quarter of 2017. On the year, the German economy grew by 2.1%.

7.31am BST

After last week's market turmoil caused by North Korea and the US being at loggerheads, an easing of the tensions between the two countries has seen a sense of calm return. Not only does North Korea appear to be toning down some of the belligerent rhetoric, but China has stepped in to comply with UN sanctions against the country.

So after Monday's gains, markets are expected to move higher again at the open:

Our European opening calls:$FTSE 7374 +0.28%
$DAX 12219 +0.44%
$CAC 5141 +0.39%$IBEX 10507 +0.43%$MIB 21785 +0.29%

7.25am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A busier day for economic figures sees the release of UK inflation data and US retail sales figures for July.

When the last set of inflation numbers were released in June they showed a sharp fall in headline CPI from 2.9% to 2.6%, a welcome decline at a time when consumers have been feeling an increasing squeeze on their incomes. This fall raised hopes that inflation may well have peaked and today's July CPI numbers could well go further in reinforcing that belief, though most expectations are for a tick back higher to 2.7%, while core CPI is also expected to rise to 2.5% from 2.4%.

A rise would be at odds with the recent softening in recent PPI numbers, which have slipped from 20% at the beginning of the year and could come in as low as 6.9% in today's July numbers, but in line with the Bank of England's forecasts which suggest we could see 3% before year end.

Related: UK inflation tipped to rise again with wages forecast to stagnate