UK inflation fell more than expected to 7.9% in June

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Britain’s inflation eased more than expected to a 15-month low of 7.9 percent in June, making it more likely the Bank of England will raise interest rates by only a quarter point next month.

The Office for National Statistics said on Wednesday that annual inflation was down from 8.7 percent in May. That was lower than the 8.2 percent forecast of economists polled by Reuters, leading to a four-month period of price increases higher than forecast.

This was in line with the BOE’s forecast of 7.9 per cent in May and the lowest since March 2022.

Sterling fell to its lowest level in a week, falling 0.6 percent against the dollar to trade at $1.2952.

Core inflation, which strips out volatile food, energy, alcohol and tobacco prices, also eased to 6.9 percent in June from a 31-year high of 7.1 percent in the previous month. Analysts expected it to remain unchanged.

Services inflation eased to 7.2 per cent in June from 7.4 per cent in May.

Both core and services inflation are closely monitored by BoE policy makers to monitor underlying and domestic price pressures and to decide on interest rates.

Markets have shifted to pricing in a 60 percent chance that the BoE will raise interest rates by a quarter percentage point to 5.25 percent at its next meeting on August 3 to bring inflation back to its 2 percent target. They were pricing in even better pricing than the potential for a big half-percentage point increase before Wednesday’s news. Traders expect the BoE’s interest rates to drop slightly below 6 percent early next year, from above 6 percent before the inflation data.

Economists have also changed their expectations. Capital Economics economist Paul Dales said the drop in headline and core inflation “is unlikely to be enough to prevent the Bank of England from raising interest rates from 5 per cent in early August, although it may tip the balance towards 25 per cent”. can bend.” increase of basis points instead of 50 basis points”.

Lower inflation is likely to ease pressure on mortgages following stronger-than-expected price and wage growth in previous months, raising expectations of interest rates and therefore payments for borrowers.

The data will be welcome news for Rishi Sunak, who has promised to halve inflation this year ahead of a possible 2024 election.

Chancellor of the Exchequer Jeremy Hunt said: “Inflation is falling and is at its lowest level since last March, but we are not complacent and know that high prices are still a major concern for households and businesses “

ONS chief economist Grant Fitzner said in June “inflation slowed significantly to its lowest annual rate since March 2022 as motor fuel prices fell”.

Transportation prices declined at an annual rate of 1.8 percent last month, led by motor fuels.

Although it remained historically high, food inflation also eased to 17.3 per cent in June from 18.3 per cent in the previous month.

ONS data also showed that annual growth in producer price inputs, such as parts and materials, turned negative in June for the first time since November 2020. The rate slowed for the 12th consecutive month from its record annual high of 24.4 percent. June 2022 down 2.7 per cent from minus last month.

Despite a larger-than-expected fall, UK price growth remained higher than other G7 countries, which economists attributed to a combination of rising energy costs and labor shortages.

In June, US inflation fell to a 27-month low of 3 percent, while eurozone price increases fell to a 17-month low of 5.5 percent.

Dales said: “The UK will probably still have higher rates of inflation than elsewhere for some time, but at least the UK is now following the global trend.”

Additional reporting by Mary McDougall