LONDON — UK inflation fell more than expected to a 15-month low, official data showed on Wednesday, a development that could ease pressure on the Bank of England to sharply raise interest rates in the coming months. to help families in need. .
The Office for National Statistics said inflation, as measured by the consumer price index, fell to 7.9% in the year to June from 8.7% the previous month. Most economists had predicted a more modest drop to 8.2%.
The statistics agency said falling fuel prices were the biggest reason behind the drop, while food price inflation also fell again, although still at historic highs.
Despite the decline, inflation remains well above the Bank of England’s target rate of 2%. As a result, the central bank is expected to raise key interest rates further at its upcoming meeting in early August.
However, analysts said a larger-than-expected drop could mean it rose just a quarter percent to 5.25% instead of 0.5 points. Financial markets now think the bank will no longer push interest rates up to 6% or possibly higher.
“The positive surprise to headline inflation in June eased significant pressure on the bank to ramp up again,” said Kallum Pickering, senior economist at Berenberg Bank.
That could give homeowners looking for a new mortgage deal some comfort if steep upward pressure on mortgage rates begins to ease.
The Bank of England, like other central banks around the world, has been raising interest rates over the past 18 months, first due to supply chain problems related to the coronavirus pandemic and then due to the invasion. Russia’s strategy into Ukraine, leading to a sharp increase in food and energy prices in particular.
However, inflation in the UK proved more difficult than in other rich countries in the Group of 7 for a number of reasons.
Many economists blame Britain’s departure from the European Union as one of the reasons trade has been hampered. Others blamed the Bank of England for being too slow to raise interest rates, which helped reduce inflation by making it more expensive for consumers and businesses to borrow money.
James Smith, Research Director at the Resolution Foundation, said: “The UK still has one of the highest inflation rates of any advanced economy, but after today it just looks bad rather than a case of pity.
While inflation is clearly falling from a double-digit peak at the end of 2022, there is still a long way to go for the UK government to meet its target of halving inflation to around 5% by the end of the year.
“Inflation is falling and is at its lowest level since March last year, but we are not complacent and know that high prices remain a major concern for homes and businesses,” said the Treasury Secretary. Jeremy Hunt said after the figures were released.