UK inflation falls to 6.7%, below expectations as food prices fall

UK inflation hit 6.7% in August, below expectations and slightly down from the previous month.

Monthly, the general consumer price index (CPI) increased by 0.3%.

Economists polled by Reuters expected the headline figure to be 7% year-on-year and a 0.7% month-on-month increase amid a slight rebound in prices at the pump. In July there was an annual increase of 6.8% and 0.4%. drop month by month.

“The largest downward contributions to the monthly variation of the annual rates of the IPCH and the CPI came from food, where prices rose less in August 2023 than a year ago, and from accommodation services, where prices could be volatile and fell in August 2023,” the report said. The Office for National Statistics said.

“The increase in motor fuel prices contributed the most to the increase in the variation in annual rates.”

The core CPI, which excludes volatile food, energy, alcohol and tobacco prices, stood at 6.2% in the 12 months to the end of August, up from 6.9% in July. The goods rate increased slightly from 6.1% to 6.3%, but was more than offset by the significant slowdown in the services rate from 7.4% to 6.8%.

He Bank of England will announce its next monetary policy decision on Thursday as authorities continue their efforts to reduce inflation towards the Bank’s 2% target.

The market has broadly priced in another 25 basis point rise in interest rates, which would take the main bank rate to 5.5%, its highest level since December 2007.

Despite Wednesday’s downside inflation surprise, the market is still pricing in a around 80% chance of this new rise, based on live LSEG swap data.

Caroline Simmons, UBS’s UK chief investment officer, told CNBC that the central bank will most likely raise rates on Thursday.

“However, we believe that this will be the last increase, because we have these downward forces on inflation,” he added.

“I think the recent rise in the price of oil made people nervous that this morning’s numbers might not continue to fall, which is why people were more at risk of an upside in their numbers, but I think The general trend is downwards.