A shopper browses fruits and vegetables for sale at an indoor market in Sheffield, UK. The Organization for Economic Co-operation and Development recently predicted that the United Kingdom will see the highest inflation rate among all advanced economies this year.
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UK inflation surprised with a drop to 6.7% in August, below expectations and sparking increased bets on a halt to interest rate hikes from the Bank of England on Thursday.
On a monthly basis, the headline CPI rose by 0.3%.
Economists polled by Reuters expected the headline figure to come in at 7% annually and increase by 0.7% month-on-month amid a slight rise in prices at pumping stations. July saw a 6.8% year-over-year increase and a 0.4% month-over-month decrease.
“The largest downward contributions to the monthly change in both CPIH and CPIH annualized rates came from food, where prices rose less in August 2023 than a year ago, and accommodation services, where prices can be volatile and fell in August 2023.” “. The Office for National Statistics said.
“Rising motor fuel prices made the largest upward contribution to the change in annual rates.”
The core CPI – which excludes volatile food, energy, alcohol and tobacco prices – was 6.2% in the 12 months to the end of August, down from 6.9% in July. The goods rate rose slightly from 6.1% to 6.3% but was offset by the services rate slowing significantly from 7.4% to 6.8%.
This unexpected decline in core inflation will be particularly welcomed by policymakers, along with signs that retail prices are starting to ease for consumers, said Raul Rubarel, director of Boston Consulting Group’s Center for Growth.
“This, combined with nominal wage growth, suggests that real wages will continue to rise until the end of the year. Together, this will be a relief for households, but it is also another sign that the economy appears to be slowing.” Ruparel said in an email on Wednesday.
“We believe the Bank of England will continue to raise interest rates tomorrow, but today’s data will encourage those pushing for this to be the final rate hike. However, it also highlights the challenge the Bank of England faces as the economy now shows signs of slowing and slowing.” . “The full impact of higher interest rates is yet to be felt.”
The Bank of England will announce its next monetary policy decision on Thursday, as policymakers continue their efforts to bring inflation back towards the bank’s 2% target.
The market is widely anticipating a 25 basis point rate hike, which would raise the bank’s key interest rate to 5.5% – its highest level since December 2007.
In light of Wednesday’s downward inflation surprise, market prices for the Bank of England’s pause jumped from 20% to nearly 50% at around 7:40 a.m. London time.
Carolyn Simons, chief investment officer for the UK at UBS, told CNBC that the central bank will likely still raise interest rates on Thursday.
“We think this will be the last rise, because we have these downward forces on inflation,” she added.
“I think the recent rise in oil prices has made people nervous that the print edition this morning might not continue to go down, so that’s why people kind of had more upside risk on their numbers, but I think the overall trend is bearish.”
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