UK Inflation Drops as Pressure from High Food Prices Ease
United Kingdom (UK) recorded a decline in headline inflation rate in August 2023 as pressures from food prices eased unexpectedly, data from the statistics office released Wednesday show.
Consumer prices rose slowly, increasing the chance that the Bank of England might pause its long cycle of interest-rate hikes this week. Inflation surprisingly eased in August against expectations it would accelerate, a welcome showing for central bankers just a day ahead of an interest-rate decision.
The consumer price index rose BY 6.7% year on year in August, slowing from 6.8% in July, according to preliminary data from the Office for National Statistics set out Wednesday.
Economists had expected price rises to accelerate to 7.0%, according to a poll compiled by The Wall Street Journal. The core CPI, which strips out the more volatile food and energy prices, decelerated to 5.9% compared with 6.9% in July.
Lower food prices were the biggest contributor to slowing inflation, according to the statistics office. The figures leave the Bank of England with more room for manoeuvre ahead of its monetary-policy committee meeting on Thursday.
The ONS said the largest downward contributions came from food, where inflation slowed to a 13.6% rate from 14.9% in July and a March peak of 19.2%.
Restaurant and hotel prices slowed to 8.3% from 9.6%, the lowest rate since May 2022. Recreation and culture goods and services saw inflation weaken to 6% from 6.8%.
The knee-jerk reaction in currency markets sent the pound (GBPUSD) lower to $1.2360, from $1.2393 on Tuesday. The inflation surprise comes one day ahead of a Bank of England interest-rate decision, in which the central bank was widely seen increasing rates by a quarter point.
It’s also welcome news for the U.K. government, which pledged to halve the rate of inflation from its 10% peak.
“Today’s news shows the plan to deal with inflation is working — plain and simple. But it is still too high which is why it is all the more important to stick to our plan to halve it so we can ease the pressure on families and businesses,” said Chancellor of the Exchequer Jeremy Hunt in a statement. Naira Devaluation Deepens Economic Crisis in Nigeria
