The UK’s headline rate of inflation has nudged down, helped by an easing of food and accommodation prices.
UK CPI inflation was reported at 6.7% for August, compared to the 6.8% recorded in July and consensus expectations of an uptick to 7.0%.
The ONS data shows an even greater drop in the core inflation reading: annual core CPI (excluding food, energy, alcohol and tobacco) came in at 6.2% compared to expectations for 6.8% and down from 6.9% in July.
On a monthly basis, CPI rose by 0.3% in August, compared with a rise of 0.5% in August 2022.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented: “It’s a painful and slow path, but inflation is continuing to head down the hill which will ease headaches at the Bank of England. Oil prices did start to march upwards in August, and hit fresh ten month highs this week, but an easing of food and hotel bills have offset the impact of higher prices at the pumps. The ramping up of crude prices over recent weeks will filter through, but there will be relief that oil prices have also snuck away from the week’s highs, with Brent Crude falling back to $93 a barrel after topping $95. This fall was partly driven by expectations that the still stubborn nature of inflation will mean central bank policymakers will vote to keep interest rates higher for longer, causing fresh pain for companies and consumers, and push down demand in economies.
“The UK’s core inflation rate, stripping out more volatile food and fuel prices, has been obstinately high but it too has made a larger than expected step in the right direction falling from 6.9% to 6.2%. Even so, with inflation still more than three times above the bank’s target another rate hike of 0.25% may still be delivered tomorrow. There may be more dissent around the table though, with the full effect of previous rate hikes yet to be felt. With the contracting in July and with employers becoming a lot more cautious about hiring staff, if there is a hike tomorrow it is likely to be the last in the cycle.”
Speaking to Newspage, Andrew Montlake, managing director of Coreco, said: “Whilst the inflation battle is not won yet, this is a substantial advance and the Bank of England should pause from any further action to see if this trend continues rather than go too far and cause economic woe. I would expect to see SWAP rates continue to ease over the coming days which will give lenders more ammunition to escalate the rate war that has been brewing for the past few weeks. We have already seen the first fixed rates under 5% and we are now likely to see more choice at this level.”
But Justin Moy, founder of mortgage broker EHF Mortgages, sounded a note of caution: “Inflation is still over three times the Bank of England target, so inevitably a further 0.25% increase in Bank Rate will be announced this week, and if world oil production is not increased, inflation will start to increase again. It just shows how fragile everything is, so it’s important that those with mortgage renewals due shortly have their new deal reserved, just in case we see another bounce in SWAP rates.”
Rozi Jones (Financial Reporter)