UK Inflation Falls to Lowest Since March 2022

UK Inflation Falls to Lowest Since March 2022

The United Kingdom’s (UK) annual inflation fell in June 2023 after stalling in the previous month, mainly thanks to the significant decline in motor fuel prices, yet analysts continue to expect further tightening in August as the rate remains well above the Bank of England’s target of 2%.

Britain’s annual inflation rate fell to 7.9% in June 2023 from 8.7% in May 2023, the Office for National Statistics said Wednesday. The latest reading, which is below the consensus forecast of 8.2%, marks the lowest rate since March 2022.

On a monthly basis, consumer prices jumped 0.1%, against the previous 0.7% increase and the expected 0.4% rise.

Excluding the prices of food, energy, and other volatile items, inflation stood at 6.9% in June, lower than the prior and expected 7.1% rate. Month over month, core consumer prices climbed 0.2%, below the earlier 0.8% rise and the market estimate of a 0.4% jump.

The substantial decline in June’s consumer price growth was “almost entirely” due to the 22.7% annual decrease in motor fuel prices, further helped by the slight easing of food price inflation.

Food and non-alcoholic beverage prices edged up 17.4% in the 12 months to June, compared with the 18.4% growth in May and the 45-year-high increase of 19.2% in March.

The ONS attributed the moderation of food price growth to the milk, cheese and eggs category, as well as meat, bread and cereals. These were partly offset by the continued increase in sugar, jam, syrups, chocolate and confectionery costs, notably chocolate, along with mineral waters, soft drinks and juices.

The better-than-expected inflation reading comes ahead of the BoE’s monetary policy meeting in August, prompting markets to believe that there is a higher chance for the central bank to deliver a 25-basis-point rate hike instead of a half-point increase. For ING, the BoE’s upcoming decision will be a “close call.”

“The Bank will also be looking at the recent wage data, which was stronger than expected but came alongside figures showing a renewed cooling in the jobs market and improvements in worker supply. The risk is that the BoE applies a similar logic to that seen in June,” ING noted. “This could mean that if it expects to hike again in September, then it might as well opt for a larger 50bp hike in August.”

House prices in Britain grew 1.9% year over year in May, following a 3.2% increase in April, according to government data released Wednesday.

The latest reading reflects an average property value of 285,861 pounds sterling in the UK. The average house price in the UK was unchanged month over month.

The UK retail price index increased 10.7% in June, down from 11.3% in May, the Office for National Statistics said Wednesday.

The latest reading was below the consensus estimate of 10.9%. On a monthly basis, the index was up 0.3%, against the previous 0.7% and the expected 0.4.%.

The UK’s producer input prices declined 2.7% year over year in June, following a 0.4% increase in May, data from the Office for National Statistics showed Wednesday.

Meanwhile, the annual growth in producer output prices stood at 0.1%, lower than the previous 2.7%. Month over month, producer input prices decreased by 1.3%, while output prices were down 0.3%.

#UK Inflation Falls to Lowest Since March 2022

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