UK INFLATION FALLS
Newsflash: UK inflation has unexpectedly fallen in August, as the cost of living pressures on households continued to ease.
The Consumer Prices Index, which tracks annual price changes, has fallen to 6.7% in August, down from July’s 6.8%.
That’s lower than the expectations of City economists, who forecast a rise to 7%, and comes despite the chancellor’s fears of a ‘blip’ higher.
But, this still leaves inflation over three times above the UK’s target, meaning there is still pressure on the Bank of England to raise interest rates again, tomorrow.
More to follow…
Key events
Motor fuel prices rose last month, the ONS reports.
The average price of petrol rose by 5.3p per litre between July and August, to 148.5p per litre, today’s inflation report shows.
Similarly, diesel prices rose by 5.9p per litre this year to stand at 151.1p per litre.
These movements resulted in motor fuel prices falling by 16.4% in the year to August 2023, compared with a larger fall of 24.9% in the year to July.
UK core inflation drops to 6.2%
In another boost to the UK economy, core inflation has fallen.
The rate of core CPI, which strips out energy, food, alcohol and tobacco, rose by 6.2% in the 12 months to August 2023. That’s a sharp fall on July, when core CPI was 6.9%.
Core inflation is an important measure for central bankers, as they try to assess how high to raise interest rates to squeeze out inflationary pressures.
At 6.7%, UK inflation is now its lowest level since February 2022 – the month when Russia’s full-scale invasion of Ukraine began to drive up the cost of oil and food.
On a monthly basis, UK inflation rose by 0.3% in August alone.
The largest downward contributions to the monthly change came from food, the Office for National Statistics reports, as “prices rose by less in August 2023 than a year ago”.
Accommodation services, where prices can be volatile, also fell in August 2023, the ONS adds.
Annual inflation slowed slightly in August 2023:
▪️ Consumer Prices Index including owner occupiers’ housing costs rose by 6.3% in the 12 months to August, down from 6.4% in July
▪️ Consumer Prices Index (CPI) rose by 6.7%, down from 6.8% in July➡️ https://t.co/Ve9iV25p0e pic.twitter.com/TCZp8gJ0yV
— Office for National Statistics (ONS) (@ONS) September 20, 2023
UK INFLATION FALLS
Newsflash: UK inflation has unexpectedly fallen in August, as the cost of living pressures on households continued to ease.
The Consumer Prices Index, which tracks annual price changes, has fallen to 6.7% in August, down from July’s 6.8%.
That’s lower than the expectations of City economists, who forecast a rise to 7%, and comes despite the chancellor’s fears of a ‘blip’ higher.
But, this still leaves inflation over three times above the UK’s target, meaning there is still pressure on the Bank of England to raise interest rates again, tomorrow.
More to follow…
The broader picture is that the UK economy is expected to see the highest inflation rate of any G7 advanced economy this year.
Yesterday, the Organisation for Economic Co-operation and Development (OECD) forecast that UK inflation to be 7.2% in 2023, which would be the fastest rate across the G7 and the third fastest across the G20.
Analysts at RBC Capital Markets point out that the Bank of England is already braced for an increase in CPI inflation in August.
They told clients that the Bank’s latest predictions showed a rise in inflation for August:
The August Monetary Policy Report showed inflation rising to 7.1% y/y last month (mainly a function of fuel prices).
The risk to the Bank’s projections is likely to come from services inflation. The August MPR saw a slight decrease in services inflation to 7.2% y/y but given the slight miss in the July outturn vs. forecast we think that the risk is that services inflation will surprise to the upside again this month albeit marginally.
The Committee will have had pre-release access to the data on Monday ahead of their meeting [this week].
Introduction: UK inflation in focus
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK’s battle against the rising cost of living may suffer a reversal today, when the latest inflation data is released.
The UK Consumer Prices Index for August, due at 7am BST, is expected to rise for the first time in six months.
Prices are forecast to have risen by 7% in the year to August, up from July’s 6.8%.
As this chart from last month shows, CPI inflation had been dropping back from its peak over 11% last autumn.
These declines had bolstered the chances that the government hit its target of halving inflation this year.
But earlier this month, chancellor Jeremy Hunt warned we could see a “blip” higher in inflation this month, as average fuel prices have jumped back above £1.50 a litre.
Oil has climbed to its highest level this year, with Brent crude rising $95 per barrel on Tuesday, adding to inflation pressures globally.
Economists have also warned that a rise in alcohol duty at the start of this month could have pushed up prices of wine, and most spirits (although some low-strength drinks became cheaper).
But food price inflation is expected to ease further in August, having slowed in July from the decades-high levels hit earlier in the year. Data provider Kantar has recently reported that UK grocery inflation slowed to its lowest in a year.
A rise in inflation today could put the seal on another UK interest rate rise. The Bank of England will announce tomorrow whether it has raised interest rates for the 15th time in a row, as it continues to battle inflation.
Another central bank, America’s Federal Reserve, will announce its own decision on interest rates tonight. The Fed is expected to leave US interest rates on hold, while it assesses the impact of its earlier rate rises.
The agenda
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7am BST: UK inflation report for August
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9.30am BST: UK house price and rental indices for July
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12pm BST: US weekly mortgage applications
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7pm BST: US Federal Reserve interest rate decision
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7.30pm BST: US Federal Reserve press conference
