UK's high inflation cools, offering some relief to BoE
Published: 02:07 PM,Jul 19,2023 | EDITED : 06:07 PM,Jul 19,2023
LONDON: Britain's high rate of inflation fell by more than expected in June and was its slowest in over a year at 7.9%, according to data that will ease some of the pressure on the Bank of England to keep on raising interest rates sharply.
Sterling weakened and investors scaled back their bets on future increases in borrowing costs as consumer price inflation growth came in at its lowest since March 2022, although it remained above the rate in other big, rich economies.
Economists polled by Reuters had mostly forecast a smaller slowdown, to 8.2% in the 12 months to June from May's 8.7%.
The BoE said in May it expected June inflation would fall to 7.9%, moving further away from October's 41-year high of 11.1% but still way above its 2% target.
'The UK still has one of the highest inflation rates of any advanced economy but after today it merely looks bad, rather than a basket case,' James Smith, head of research at the Resolution Foundation think-tank, said.
'That is a very welcome improvement.'
Sterling was down by more than 0.5% against the U.S. dollar and touched its lowest against the euro since May.
Markets now reckon a quarter-percentage point rise in interest rates on Aug. 3 is likelier than the half-percentage point increase which had been priced in on Tuesday. Bank Rate was no longer seen peaking at 6%. British government bond prices soared and shares in home-builders jumped.
Core inflation — which excludes food, energy, alcohol and tobacco prices and which the BoE uses to gauge underlying price pressures — also dropped, coming in at 6.9% compared with May's three-decade high of 7.1%.
Economists polled had expected the core measure of price growth to hold at 7.1%.
Petrol and diesel prices — down a record 23% on a year ago — were the biggest drag on headline inflation, the Office for National Statistics said.
But there were painful increases for other goods and services. Sugar prices rose by 54%, while transport insurance costs were up 48%, the biggest rise since records started in the late 1980s.
BoE Governor Andrew Bailey has faced criticism from investors and former BoE officials after inflation kept climbing higher than expected, despite 13 back-to-back rate increases since December 2021 that have raised the risk of a recession.
Prime Minister Rishi Sunak has promised to halve inflation by the end of 2023 before a national election expected in 2024, a target that finance minister Jeremy Hunt says is challenging.
Responding to Wednesday's data, Hunt said the government and BoE had taken tough decisions to get inflation down. 'We're seeing the first fruits of that, but there's a long way to go,' he said.
The opposition Labour Party, riding high in opinion polls, has accused Sunak's Conservative Party of presiding over a 'mortgage catastrophe' as home-owners see their borrowing costs jump.
Despite June's drop, Britain's inflation rate remains the highest among the world's top seven rich economies. In Western Europe, only Iceland had a higher rate of inflation in June. — Reuters
Sterling weakened and investors scaled back their bets on future increases in borrowing costs as consumer price inflation growth came in at its lowest since March 2022, although it remained above the rate in other big, rich economies.
Economists polled by Reuters had mostly forecast a smaller slowdown, to 8.2% in the 12 months to June from May's 8.7%.
The BoE said in May it expected June inflation would fall to 7.9%, moving further away from October's 41-year high of 11.1% but still way above its 2% target.
'The UK still has one of the highest inflation rates of any advanced economy but after today it merely looks bad, rather than a basket case,' James Smith, head of research at the Resolution Foundation think-tank, said.
'That is a very welcome improvement.'
Sterling was down by more than 0.5% against the U.S. dollar and touched its lowest against the euro since May.
Markets now reckon a quarter-percentage point rise in interest rates on Aug. 3 is likelier than the half-percentage point increase which had been priced in on Tuesday. Bank Rate was no longer seen peaking at 6%. British government bond prices soared and shares in home-builders jumped.
Core inflation — which excludes food, energy, alcohol and tobacco prices and which the BoE uses to gauge underlying price pressures — also dropped, coming in at 6.9% compared with May's three-decade high of 7.1%.
Economists polled had expected the core measure of price growth to hold at 7.1%.
Petrol and diesel prices — down a record 23% on a year ago — were the biggest drag on headline inflation, the Office for National Statistics said.
But there were painful increases for other goods and services. Sugar prices rose by 54%, while transport insurance costs were up 48%, the biggest rise since records started in the late 1980s.
BoE Governor Andrew Bailey has faced criticism from investors and former BoE officials after inflation kept climbing higher than expected, despite 13 back-to-back rate increases since December 2021 that have raised the risk of a recession.
Prime Minister Rishi Sunak has promised to halve inflation by the end of 2023 before a national election expected in 2024, a target that finance minister Jeremy Hunt says is challenging.
Responding to Wednesday's data, Hunt said the government and BoE had taken tough decisions to get inflation down. 'We're seeing the first fruits of that, but there's a long way to go,' he said.
The opposition Labour Party, riding high in opinion polls, has accused Sunak's Conservative Party of presiding over a 'mortgage catastrophe' as home-owners see their borrowing costs jump.
Despite June's drop, Britain's inflation rate remains the highest among the world's top seven rich economies. In Western Europe, only Iceland had a higher rate of inflation in June. — Reuters