Skyline view of the financial district of the City of London.

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LONDON – UK inflation eased substantially in June, falling to an annualized 7.9%, below consensus expectations.

Economists polled by Reuters had forecast an annual rise in the headline consumer price index of 8.2%, after a warmer-than-expected 8.7% reading for May, but annual price growth is trending up significantly. bank of englandhas a target of 2%.

On a monthly basis, the headline CPI increased by 0.1%, below the consensus forecast of 0.4%. Core inflation – which excludes volatile energy, food, alcohol and tobacco prices – held steady at an annual 6.9% but fell from a 31-year high of 7.1% in May.

Falling motor fuel prices made the biggest contribution to the monthly change in the CPI annual rate, the Office for National Statistics said on Wednesday. Food prices rose in June, but less so than in the same period last year.

“There was no major offsetting contribution to the rate change,” the ONS said.

Real The dollar declined 0.6% on Wednesday and was hovering around $1.296 at 7:50 a.m. London time.

Treasury Chief Secretary John Glenn told CNBC on Wednesday that the larger-than-expected drop in the inflation rate was “very encouraging.”

“But there is no satisfaction in the treasury here,” he said. “We are working closely with the Bank of England as we look to halve this this year and bring it down to the long-term norm of 2%.”

UK Treasury's Glenn says public sector pay hike will not be inflationary

Britain has faced persistent high inflation both in front of the government and bank of england There have been warnings that this could ripple through the economy as a cost-of-living crisis and a tight labor market Fuel Wage Price Hike,

bank of england Governor Andrew Bailey and Britain’s finance minister Jeremy Hunt told an audience in the City of London earlier this month that higher pay agreements were hurting their efforts to control inflation.

The Organization for Economic Co-operation and Development estimated last month The UK will experience the highest level of inflation among all advanced economies this year, with a core annual rate of 6.9%.

The Bank of England last month implemented a bumper 50-basis-point hike in interest rates, its 13th consecutive increase, as the Monetary Policy Committee struggles to stoke demand and rein in inflation.

Markets are narrowly pricing in another aggressive half-point hike to 5.5% at the MPC’s August meeting, after the UK base rate rose from 0.1% to 5% over the past 20 months.

a ‘ray of light’

Although energy and fuel prices are driving headline inflation “in the right direction”, extremely high inflation and food costs mean Wednesday’s print is unlikely to provide “any real relief to struggling households and businesses”, the institute said. Suren Thiru, director of economics, said. of Chartered Accountants in England and Wales.

“The fall in inflation in June should be followed by a sharp fall in July, with lower energy bills – following a reduction in Ofgem’s energy price range – with headline rates likely to fall below 7%,” Thiru said in a statement.

He said core inflation should continue to decline as the Bank of England’s monetary policy tightening and the government’s tax hike dampened demand. Yet he warned that it would come “at the cost of a significantly weakened economy and high unemployment”.

Thiru said, “While interest rates will probably rise again in August, focusing too much on current inflation data for rate-setting would be counterproductive given the long lag between rate hikes and their impact on the broader economy.” There could be harmful policy mistakes made.”

Britain's economy is showing cracks, strategist says

Marcus Brooks, chief investment officer at Quilter Investors, said the fall in CPI represented a “ray of light” but “we are still surprised once again that the UK lags so far behind major economies when it comes to inflation”. Why is it”.

“Demand has weathered both inflation and rate increases, but the cracks are showing, and as more mortgage holders become exposed to current rates, the economy is likely to suffer as a result.”

Brooks said this path to a possible recession next year may be necessary to get inflation back on target, with the Bank of England raising rates further and fiscal tightening unlikely as the government faces elections in 2024. have to do it.

“Inflation should soon start to fall to more comfortable levels, but as we see these forecasts are unpredictable,” he added.

“For investors, this means seeking refuge in quality companies that can weather this difficult environment, as well as looking at UK fixed income investments, such as gilts, as they look attractively priced now because We are entering a potentially difficult economic period.”

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