By Oyintari Ben
Inflation in the UK dropped to a 15-month low of 7.9% in June, a larger-than-expected decline that pushed the pound down, boosted real estate markets and gave Prime Minister Rishi Sunak a lift.
The Bank of England’s next meeting is on August 3, and as a result of Wednesday’s statistics, markets are now betting on a quarter-point increase rather than a half-point increase.
Sterling traded at $1.2897 against the dollar, down 1.1%, its lowest level in a week.
According to the Office for National Statistics, annual inflation decreased from 8.7% in May to 8.1%.
In the fight to control inflation, the UK is less of an outlier now that significant inflation decreases are occurring, according to James Smith, research director at the Resolution Foundation think tank.
The headline figure, which was helped by a decline in the price of motor fuel, was the lowest since March 2022, while underlying “core” inflation decreased marginally to 6.9%.
The possibility that the bank will raise the benchmark rate from 5% to 5.25% at its meeting on August 3 is now pegged at 60% by the markets.
Before the release of the numbers on Wednesday, they had been assigning a better-than-even probability that the bank would raise interest rates by a half-point to drive inflation back to its objective of 2%.
Investors anticipate that benchmark interest rates at the BoE will peak at a little below 6% early next year. Prior to the release of the inflation data, they had projected a peak of slightly over 6%.
The most recent figures indicate that pay growth has accelerated to a new high.
Persimmon, Barratt, and Taylor Wimpey saw increases of 8.3%, 7%, and 6.8%, respectively, helping the London Stock Exchange’s FTSE 100 to increase by 1.8%.
The inflation data were also good news for Sunak, who has tried to make his case to voters about economic competence but is down in the polls and will face three challenging by-election tests on Thursday.
While acknowledging that businesses and individuals were still struggling due to high costs, Downing Street said it was “encouraging to see headline and core inflation rates falling.”
