UK inflation rate slides to 7.9% in June, below expectations

LONDON – Inflation in the United Kingdom cooled sharply in June to an annual rate of 7.9% below consensus expectations.

Economists polled by Reuters expect headline consumer prices to rise at an annual rate of 8.2% after a higher-than-expected 8.7% figure in May, but annualized price gains continue to run well above the Bank of England’s 2% target.

On a monthly basis, the headline CPI rose 0.1%, That was below the consensus forecast of 0.4%. Core inflation, which excludes volatile energy, food, alcohol and tobacco prices, remained at a high annual rate of 6.9%, but was down from a 31-year high of 7.1% in May.

The National Bureau of Statistics said on Wednesday that the decline in vehicle fuel prices had the greatest impact on the annualized monthly change in the CPI. Food prices rose in June, but at a slower pace than a year earlier.

The ONS added: “The interest rate change did not generate a large offsetting upward contribution.”

GBP As of 7:50 a.m. London time, it was down 0.6% against the dollar on Wednesday, hovering around $1.296.

Treasury Chief Secretary John Glenn told CNBC on Wednesday that it was “very encouraging” that inflation fell more than expected.

“But the Treasury is not complacent,” he added. “We are working closely with the Bank of England to try to halve it this year and bring it down to the long-term normal of 2%.”

Britain has experienced persistently high inflation, which both the government and the Bank of England have warned could become entrenched in the economy as wage prices rise from a cost-of-living crisis and a tight labor market.

BoE Governor Andrew Bailey and U.K. Finance Minister Jeremy Hunt told an audience in the City of London earlier this month that the high-wage deal was hurting their efforts to curb inflation.

The Organization for Economic Co-operation and Development forecast last month that Britain would experience the highest inflation rate of any advanced economy this year, with headline annual inflation at 6.9%.

The Bank of England raised interest rates by a massive 50 basis points last month, its 13th consecutive hike, as the Monetary Policy Committee struggles to curb demand and rein in inflation.

After raising the UK benchmark interest rate from 0.1% to 5% over the past 20 months, the market expects another sharp half-point hike to 5.5% at the MPC’s August meeting.

A “shimmer”

Suren Thiru, director of economics at the institute, said that while energy and fuel prices were moving headline inflation in the “right direction”, persistently high core inflation and food costs meant Wednesday’s report was unlikely to be “a positive for the economy.” Real relief for struggling households and businesses.” Chartered Accountants in England and Wales.

“Following the reduction of the Ofgem energy price ceiling, inflation is set to fall sharply in July following a fall in June, with lower energy bills likely to pull headline rates below 7 per cent,” Thiru said in a statement.

He added that core inflation should continue to trend downward as the Bank of England tightens monetary policy and the lagged effect of government tax increases squeezes demand. Still, he warned it would come “at the cost of a significantly weaker economy and higher unemployment”.

“While rates may rise again in August, given the long time lag between rate hikes and the impact on the broader economy, too much focus on current inflation data in setting rates could lead to damaging policy errors,” Thiru said.

Marcus Brookes, chief investment officer at Quilter Investors, said the decline in CPI represented a “glimmer” but on inflation, “still leaves us wondering again why the UK is so badly affected among the major economies.” exception”.

“Demand has withstood rising inflation and interest rates, but cracks are emerging and the economy could take a hit as more mortgage holders face the fallout from current interest rates.”

Brooks noted that this path of possible recession next year may be necessary to bring inflation back to target, with the Bank of England set to raise interest rates further and with the government facing a general election in 2024, fiscal tightening is unlikely.

He added: “Inflation should start to fall back to more acceptable levels soon, but as we have seen, these forecasts are unpredictable.”

“For investors, this means seeking refuge in quality companies that can navigate this difficult environment, while also looking at UK fixed income investments, such as UK gilts, which are currently at risk as we enter potentially difficult economic times. It looks attractive.”