UK inflation rate dropped sharply from 8.7% to 7.9% in June amid the Bank of England’s high market expectations that the monetary tightening approach is reining in soaring prices. Meanwhile, the ONS (Office for National Statistics) recorded the lowest CPI (Consumer Prices Index) since March 2022, when they registered 7%. The figure rose in April 2022 to 9% after Russia invaded Ukraine.
In any case, the core inflation, which leaves out volatile energy and food prices, jumped by 6.9%, down from 7.1% in May. While it rose by 0.8% in May, the CPI rose in June by 0.1%. The CPIH (CPI housing costs) fell from 7.9% in May to 7.3% in June. In general, ONS officials believe that the inflation rate slowed substantially due to the drop in motor fuel prices. The core inflation also dropped after attaining a 30-year high in May.
Further reports indicate that food prices fell slightly in June despite their current record highs. Manufacturers’ costs remain elevated for food items and construction materials. Besides, the price growth pace dropped through 2022, with the overall raw materials cost dropping for the first time in two years. The Bank of England will scrutinize the latest ONS report before announcing the next bank rate for their long-term mandate to maintain a 2% inflation rate.
In the meantime, the Bank of England will announce the bank rate on the 3rd of August after hiking it to 5% by half a point in June. Analysts had predicted another half-point bank rate hike before the ONS inflation data. But the new inflation figures surpassed expectations and fell more than their prediction. Nonetheless, the inflation rate left analysts wondering why the UK faced a drastic inflation challenge compared to other developed economies.
While the figures are way above the 2% rate target, it is too early to consider a rate hike pause, and the market is becoming accustomed to high inflation. The core inflation remains persistently stubborn despite beating expectations. Analysts believe it might be the interest rate hikes’ lag effects, but it is too early to celebrate. Most importantly, they say the new inflation data is good news for the UK economy as the core inflation fell below expectations.
On the other hand, Eurostat announced that the Eurozone inflation dropped from 6.1% to 5.5%. The Eurozone comprises 20 countries using the same currency, while up to 28 EU countries don’t use it. The rising tobacco, alcohol, and food costs contributed to a lower 6.4% inflation across the Eurozone. Above all, the European Central Bank, the United States Federal Reserve, and the BoE have a shared interest in maintaining the inflation rate at 2%.
