In the year to July, the UK consumer price inflation (CPI) rose by 4.4 per cent, up from 3.8 per cent in June - more than double the Bank of England's target of 2 per cent. Meanwhile UK house prices fell in July as the squeeze on credit brought the property market to a ``virtual standstill,'' the Royal Institution of Chartered Surveyors (RICS) said.

UK banks approved the lowest number of mortgages since at least 1999 in June.

The Office for National Statistics said today that in the year to July, the all items UK retail prices index (RPI) rose by 5.0 per cent, up from 4.6 per cent in June.

Over the same period, the all items RPI excluding mortgage interest payments index (RPIX) rose by 5.3 per cent, up from 4.8 per cent in June.

The largest upward contribution to the change in the CPI annual rate came from food and non-alcoholic beverages with the largest single effect coming from meat where prices rose this year but fell a year ago, particularly for bacon, ham and poultry. Within this division, there were also large upward effects from bread and cereals, and vegetables including potatoes. There were smaller upward effects from fish and fruit, particularly bananas whose

There were further large upward contributions from:

• transport costs, mainly due to the price of fuels and lubricants and air transport. The average price of petrol increased by 1.2 pence per litre between June and July this year, to stand at 118.8 pence, compared with a fall of 0.4 pence last year. Diesel prices rose by 1.8
  pence per litre this year compared with a fall of 0.4 pence last year.

• The other large upward effect came from passenger air transport where fares overall rose by more than last year, particularly on European routes. These effects were partially offset by a small downward effect from sea travel

• housing and household services due to gas and electricity. Gas and electricity bills were unchanged this year but fell a year ago. Within this division, there was a small downward effect from actual rentals for housing with rents rising by less than a year ago

• furniture, household equipment and maintenance where overall price discounting was not as great as last year. A large effect came from furniture and furnishings, particularly kitchen furniture, with a smaller contribution from household textiles

• clothing and footwear where falls in price due to sales were not as large as last year, particularly for women’s outerwear

Small upward contributions came from:

• restaurants and hotels where prices rose by more than a year ago, particularly for hotel accommodation

• communication where the overall price of telephone equipment and services fell by less than a year ago

A small downward contribution to the change in the CPI annual rate came from recreation and culture. This was mainly from games, toys and hobbies where the price of computer games fell this year but rose a year ago and, to a lesser extent, from recording media where the price of pre-recorded DVDs fell by more than a year ago. This was partially offset by a large upward effect from cultural services, particularly live events, and a small upward effect from data processing equipment where prices fell by less than a year
ago.

The only large downward contribution to the change in the RPI annual rate came from housing. The effect came mainly from house depreciation which fell this year but rose a year ago reflecting movements in the smoothed house price index used to calculate this component. Depreciation is excluded from the CPI. There was also a small downward effect from rent which rose by less than a year ago. Partially offsetting these effects was a small upward effect from repairs and maintenance charges which rose by more than a year ago.

The consumer prices index (CPI) is the main United Kingdom domestic measure of consumer price inflation for macroeconomic purposes. It forms the basis for the Government’s inflation target that the Bank of England’s Monetary Policy Committee (MPC) is required to achieve.

The retail prices index (RPI) is the most long-standing general purpose measure of inflation in the United Kingdom and is available from June 1947. It is used for a variety of purposes by both government and external users including the indexation of various incomes and prices and the uprating of pensions, benefits and index-linked gilts.

RICS UK housing market survey July 2008

Sales continue to dry up but some realism returns to the market.

The average number of transactions per surveyor fell further in July as a lack of mortgage finance continued to weigh heavily on the market.

However, sales expectations have improved, driven by sellers beginning to offermore realistic asking prices.

The RICS house price balance improved slightly for the third consecutive month but still remains at a significantly low level. 83.9 per cent more Chartered Surveyors reported a fall than a rise in house prices, a decrease from 86.9 per cent in June.

Theinability of many to secure mortgage finance is reflected in the collapse in transactions. 

The average number of transactions per surveyor (over the last three months) is now at 14.4, the lowest figure since the survey began and the net balance of newly agreed sales remains in negative territory.

Demand remains weakwith the balance of surveyors reporting new buyer enquiries still at a low ebb. Last month, new buyer enquiries improved again with 27 per cent more Chartered Surveyors reporting a fall than a rise compared to 35 per cent in June and 50 per cent in May.

In June, surveyors reported that ‘predatory buyers’ were bargain hunting for property. This month, surveyors report that‘realism’ has returned to the market with many sellers dropping asking prices to more realistic levels. Indeed, sales expectations in some regions are becoming more optimistic, especially across the South of England and Yorkshire and Humberside. 

New instructions to sell property edged closer to positive territory with 3 per cent more Chartered Surveyors reporting a fall than a rise, up from 13 per cent in June.

The current period of economic weakness has led to higher levels of unemployment  but the latest repossession figures still remain well below the levels seen in the early 1990’s.

Commenting, RICS spokesperson Ian Perry said: "The lack of mortgage finance has brought the housing market to a virtual standstill with first-time buyers rapidly becoming an endangered species.

"Going forward, there are signs that sales activity might pick up a little as sellers start to re-evaluate unrealistic asking prices.

"However, the current confused messages from the Government regarding stamp duty risks damaging any returning confidence and may discourage mobility."