BoE will expect to keep up pressure despite a drop in the inflation.
The UK CPI fell in August for the first time since 2021, but underlying inflation dynamics will continue to drive the BoE (Bank of England) to speed up interest rate increases, the sector has warned.
Lower gasoline prices caused the headline inflation rate to fall down from 40-year highs to 9.9%. Despite this, core inflation, which excludes volatile food and energy costs, grew nonetheless and now stands at 6.3%, a 30-year high.
The UK’s today’s lower-than-expected inflation rate “offered up a welcome surprise, delivering a small ray of brightness for our faltering economy,” according to Ben Laidler, global markets strategist at social investment network eToro.
While the reduction in inflation is appreciated, Wealth Club financial expert Nicholas Hyett warned that “it is far too early to be celebrating victory in the struggle against increasing prices,” contending that it may just be “a brief calm before the storm restarts.”
Following the release of today’s inflation data, all eyes will be on the Bank of England next week when it holds its postponed Monetary Policy Committee meeting and announces its decision regarding the direction of interest rates.
While Laidler acknowledged that lower headline inflation is a positive start in the right direction, she also predicted that “the Bank of England will put its foot on the gas next week, with a 0.75% interest rate increase” due to the stickiness of underlying inflation.
Some analysts anticipate a less drastic increase. The new inflation data may make a 0.75% increase in UK interest rates next week somewhat less likely, but they “appear certain to be lifted by at least 0.5%,” according to Rupert Thompson, investment strategist at Kingswood.
The minor decline in UK inflation, according to Susannah Streeter, senior investing and markets analyst at Hargreaves Lansdown, “will reduce pressure on policymakers and offer them a bit more breathing space.”
When policymakers meet the following week, she stated, “Rates are still anticipated to climb, but a lower hike of 0.5% is now appearing more likely.”
