Stay informed about UK inflation with our free updates.
Sign up to receive the myFT Daily Digest email, summarizing the latest UK inflation news each morning.
In June, UK inflation dropped unexpectedly to a 15-month low of 7.9%, increasing the likelihood of the Bank of England (BoE) raising interest rates by only 0.25% next month. The news caused a decline in sterling and a rally in property stocks.
According to the Office for National Statistics (ONS), annual inflation decreased from 8.7% in May, surpassing the forecast of 8.2% by Reuters economists. This marks the end of a four-month period where price growth exceeded expectations.
The figure aligns with the BoE’s prediction in May and is the lowest since March 2022.
Sterling reached its lowest level in a week, trading 0.6% lower against the dollar at $1.2952.
Economist Paul Dales from Capital Economics stated that while the drop in inflation is unlikely to deter the BoE from increasing interest rates, it may lead to a smaller 0.25% hike instead of a 0.5% hike.
Markets are now predicting a 60% probability of a 0.25% increase to 5.25% at the August 3 meeting. Prior to the news, there was a higher chance of a 0.5% increase to bring inflation back to the 2% target.
Traders now expect BoE benchmark interest rates to peak just below 6% in early 2023, compared to previous expectations of slightly above 6%.
The decrease in inflation is expected to alleviate pressure on mortgage rates following higher-than-expected price and wage growth, which had raised rate expectations and borrower payments.
UK property groups and housebuilders experienced a surge in share prices as investor expectations for peak interest rates decreased.
Persimmon, Barratt, and Taylor Wimpey saw respective increases of 5.7%, 4.9%, and 4.8% in early trading, contributing to a 1% rise in London’s FTSE 100 index.
Landsec, one of the UK’s largest landlords, and real estate group Segro were also top gainers on the FTSE.
Analysts closely monitor both core and services inflation to assess underlying price pressures and inform interest rate decisions.
The data will be welcomed by UK Prime Minister Rishi Sunak, as he aims to halve inflation this year ahead of the probable 2024 election.
Chancellor Jeremy Hunt acknowledged the falling inflation but recognized that high prices remain a significant concern for families and businesses.
Rachel Reeves, shadow chancellor, criticized the persistent high inflation and viewed it as a failure of the Conservative party’s economic policies.
Grant Fitzner, ONS chief economist, attributed the June slowdown in inflation to price drops in motor fuels.
Transport prices, led by motor fuel, fell by 1.8% annually last month.
Food inflation also eased to 17.3% in June, down from 18.3% the previous month.
Additionally, ONS data revealed that the annual growth of producer price inputs turned negative in June, the first time since November 2020. The rate has steadily decelerated for the 12th consecutive month, from a record annual high of 24.4% in June 2022 to -2.7% last month.
While UK price growth remains higher than in other G7 countries, economists attribute this to soaring energy costs and labor shortages.
In June, US inflation reached a 27-month low of 3%, while the eurozone experienced a 17-month low of 5.5%.
Dales stated that the UK will likely continue to have higher inflation rates compared to other countries in the near future, but at least it is now following the global trend.
Additional reporting by Mary McDougall
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
