This week saw the release of UK inflation figures for June. The consumer price index (CPI) fell back to zero following a 0.1% increase in May. More surprising was the drop in the core CPI figure which excludes the more volatile food and energy prices. This fell to a rate of 0.8% and was the lowest reading since March 2001.

Despite the weaker data the Bank of England Governor, Mark Carney, surprised the market with comments following the release in which he suggested that timing of the first rise in UK interest rates is moving closer. With regard to the first move the market appears split, with economic forecasters predicting the first rise will be in the first quarter on 2016 whilst investors, as represented by the sterling overnight index average, indicate that the first rate rise will not come until May next year.

Meanwhile, UK average earnings growth accelerated at the quickest pace in more than five years. The annual rate of 3.2% for the three months to the end of May represents the highest rate of growth since 2010. The increase was driven by wage growth in the private sector. On a more negative note however total employment fell. Although 30,000 new full time jobs were added there was the loss of 97,000 part time workers.

With wage inflation now higher than CPI, coupled with a lower oil price, in theory members of the public now have increased spending power. This should hopefully feed through into higher retail sales, which is important for an economy where historically circa two thirds of economic growth is due to consumption. With regard to whether this will lead to higher inflation this is still open to debate. Possibly of more influence will be impact of the oil price within the inflation calculations and the price of imported goods.

As to when the first interest rate rise will be, the market has unsuccessfully been trying to pin point this one now for many years.