UK inflation has fallen to its lowest level in more than a year

London
CNN
—

UK inflammation Last month it fell to its lowest annual rate since March 2022, which means the Bank of England will raise interest rates by just a quarter of a percentage point next month.

Consumer prices rose 7.9% last month compared to a year earlier, up from 8.7% in May, the Office for National Statistics said. said Wednesday. Economists polled by Reuters had forecast an increase of 8.2%.

“Inflation eased significantly … driven by a fall in motor fuels,” ONS chief economist Grant Fitzner said in a statement.

Core inflation, which strips out volatile food and energy costs and is the best gauge of the underlying trend in prices, came in at 6.9%, up from 7.1% in May, the highest rate in 31 years.

Food price inflation also eased to 17.3% from 18.3% in May, with prices still rising strongly last month and lower than a year ago in May.

The data will provide some relief to the Bank of England, which has raised borrowing costs at every meeting from December 2021 and last month cut its key interest rate to 5%.

Paul Dales, chief UK economist at Capital Economics, said a slowdown in price rises would “tip towards equilibrium” a quarter of a percentage point rather than half a percentage point as in June.

Likewise, when the central bank meets on August 3, markets are predicting a quarter-point hike to 5.25%.

KPMG Chief Economist Yael Selfin said the drop in core inflation — As well as services inflation, this includes the cost of hotels, haircuts and eating out — “Following continued increases fueled by strong wage pressures in the labor market, underlying inflationary pressures may point to weakening.”

Annual service inflation eased to 7.2% in June from 7.4% in May.

Capital Economics predicts UK interest rates will remain at 5.5%. “Overall, the UK will continue to have higher inflation rates than elsewhere for some time to come,” Dales added.

For consumers and merchants, there will be some immediate relief.

“Don’t forget, most prices aren’t falling, they’re just rising at a somewhat slower rate,” said Kevin Bright, price expert at McKinsey.

Inflation hit a multi-decade high last year, eating away at wages as wage increases failed to keep up. At the same time, rising interest rates have made mortgages and other loans more expensive, squeezing household finances and weighing on corporate profit margins.

“Don’t forget, most prices aren’t falling, they’re just rising at a somewhat slower rate,” said Kevin Bright, price expert at McKinsey.

More than two million mortgage holders in the UK They’re bracing for a sharp increase in their monthly repayments when they’re forced to refinance fixed-rate contracts this year and next.

And the National Institute of Economic and Social Research estimates that more than a million households will wipe out their savings by the end of the year due to high mortgage payments.

The country’s lingering cost-of-living crisis has continued to fuel the worst wave of industrial action in three decades.

Planned strikes by train drivers and airport workers in the coming weeks threaten to cause travel chaos at the start of the school summer holidays. The London Underground is expected to shut down between July 25-28 due to the train drivers’ walkout.

Meanwhile, baggage handlers and ground staff at Gatwick Airport are set to go on strike from July 28 to August 1 and from August 4 to August 8.

According to the ONS, strikes cost the UK economy almost 2.5 million working days between June and December 2022, the most since 1989.