In June, UK’s inflation rate decreased to 7.9%, as reported by the Office for National Statistics. This figure indicates a decline from the 8.7% recorded in May. While economists had predicted a slightly higher rate of 8.2%, the latest data comes in significantly lower than this forecast. However, it aligns with the 7.9% forecast made by the Bank of England in May.
The Consumer Price Index [CPI] experienced a modest 0.1% increase on a monthly basis. This falls short of the consensus forecast of 0.4%. Core inflation, excluding the volatile prices of energy, food, alcohol, and tobacco, remained relatively steady with an annualized rate of 6.9%. However, it did decrease from a 31-year high of 7.1% recorded in May, which was unexpected by analysts who anticipated it to remain unchanged. Additionally, services inflation decreased from a 31-year high of 7.4% in May to 7.2%.
Bank of England is expected to take its decision on interest rates next month. Therefore, policymakers are closely monitoring both core inflation and services inflation. They will assess underlying and domestic price pressures and make informed decisions regarding interest rates.
Declining inflation does not imply that goods become less expensive. It rather means that prices are not increasing as rapidly. While the latest data is regarded as positive, it remains at a high level. Consequently, Prime Minister Rishi Sunak has made a commitment to halve the UK inflation by the end of 2023. Shadow Chancellor Rachel Reeves said,
“Inflation has been persistently high and remains higher than our international peers. This is becoming a hallmark of Tory economic failure. Today’s numbers confirm what families across the country already know – that prices are still going up at staggering rates and that they’re bearing the brunt of those costs.”
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UK Inflation: Pound veers towards biggest one-day drop this month
As a result of UK inflation decelerating more rapidly than anticipated in June, the pound is moving towards its most significant one-day decline this month. Against the US dollar, the pound has depreciated by nearly a cent. Furthermore, the exchange rate dropped from $1.3034 to $1.2940 over the last couple of hours.
Paul Dales, chief economist at Capital Economics, further added,
“Overall, the UK will probably still have higher rates of inflation than elsewhere for a while yet, but at least the UK is now following the global trend. Our forecast is that core and services CPI inflation will both ease gradually as the effects of the previous rises in interest rates are felt.”
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