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Sharp Decline In UK Inflation Provides Some Respite To The Bank Of England


Sharp Decline In UK Inflation Provides Some Respite To The Bank Of England
According to official figures, British inflation dropped more than forecast in June and slowed to 7.9%, which will lessen some of the pressure on the Bank of England to continue hiking interest rates substantially.
As the Office for National Statistics reported that the consumer price inflation growth rate was at its lowest level since March 2022 but remained above the rate of price increase in other large, wealthy nations, the pound fell against the dollar and the euro.
The CPI rate was predicted by economists surveyed by Reuters to fall from May's 8.7% to 8.2% in the 12 months to June, moving further away from the 11.1% peak set in October but remaining significantly above the BoE's 2% target.
In May, the BoE predicted that inflation would drop to 7.9% in June.
"Overall, the UK will probably still have higher rates of inflation than elsewhere for a while yet, but at least the UK is now following the global trend," Paul Dales, chief UK economist at Capital Economics, said.
Bets on additional interest rate increases by the BoE were hauled in by investors. Markets now indicate that a 25-basis point increase in January is more likely than a 50-basis point increase that was anticipated on Tuesday.
Bank Rates reaching a peak of 6% are no longer fully priced, as they were on Tuesday.
Core inflation, which the BoE monitors to measure underlying price pressures and excludes prices for food, energy, alcohol, and tobacco, also decreased more than anticipated, falling from May's 7.1%, its joint highest level in more than 30 years, to 6.9%.
The core measure of price growth was forecast to remain at 7.1% by economists surveyed by Reuters.
Food and non-alcoholic beverage price inflation decreased from 18.3% in May to 17.3%, but it is still a significant financial burden for many households.
On August 3, the BoE is anticipated to hike interest rates for the fourteenth consecutive time after raising its base rate to 5% in May from 0.1% in December 2021.
Prior to the upcoming national election in 2024, Prime Minister Rishi Sunak earlier this year pledged to cut inflation in half by the end of 2023. Finance Minister Jeremy Hunt has called this goal as difficult.
"Inflation is falling and stands at its lowest level since last March; but we aren't complacent," Hunt said in a statement after Wednesday's data.
Sunak's Conservative Party has been accused by the opposition Labour Party, which is leading in surveys, of preside over a "mortgage catastrophe" as home owners' borrowing expenses rise.
Services prices, which are also closely watched by the BoE, increased by 7.2% annually, slowing from 7.4% in the year prior to May.
Factory gate prices increased by just 0.1% in the 12 months leading up to June, the lowest level since December 2020, showing a softening of inflation pressure.
The price of manufacturing inputs decreased by 2.7%, the greatest in over three years.
According to a Reuters survey of economists, output prices would rise by 0.5% and input prices would decline by 1.6%.
Britain's slower rate of deflation than other nations is partially a result of the energy subsidies' biannual price changes.
However, the BoE is concerned that strong wage growth may keep price increases higher for longer than it anticipates. According to its prediction, inflation will decline to slightly over 5% in late 2023 before slipping below its 2% objective only in early 2025.