UK CPI rate falls to 9.9% in August from 10.1% Economists warn that the CPI is likely to rise again later in 2022 The sharp drop in fuel prices is pushing down the CPI index The BoE is expected to raise interest rates again next week
LONDON, Sept 14 (Reuters) – Britain’s consumer price inflation fell for the first time in almost a year in August as falling fuel prices offered some unexpected – and possibly brief – respite for households and the Bank of England. Annual consumer price growth slowed to 9.9% from July’s 40-year high of 10.1%, the Office for National Statistics said on Wednesday. That was the first drop since September 2021 and below expectations in a Reuters poll for a rise of 10.2%. But economists warned that inflation was likely to peak around 11% in October when the new cap on household energy tariffs kicks in, and said it could be slow to fall due to underlying pressures and new government fiscal stimulus. Sign up now for FREE unlimited access to Reuters.comSign up “The Bank of England will have to keep turning the screws,” said Paul Dales, chief UK economist at consultancy Capital Economics. Britain’s central bank was expected to raise interest rates on Thursday, but delayed the decision by a week after the death of Queen Elizabeth. Financial markets see an 80% chance the BoE will raise interest rates by 0.75 percentage points to 2.5% on September 22. This would be the biggest rise in interest rates since 1989, barring a brief bid to strengthen sterling during the 1992 currency crisis. Most economists polled by Reuters think a half-point hike is more likely, but they also expect the BoE to keep raising interest rates next year, despite a slowing recession-risk economy. Britain has been hit hard by rising European gas prices triggered by Russia’s invasion of Ukraine, which has added to post-Covid supply chain bottlenecks and labor shortages, putting severe pressure on living standards. Britain’s inflation is the highest in the G7 group of major advanced economies, although it is lower than that of many European countries, including Spain and the Netherlands. The UK’s inflation rate is higher in the G7, but lower than some EU countries
STICK INFLATION?
The BoE’s task of bringing inflation back to its 2% target has been made slightly easier, in the short term at least, by new Prime Minister Liz Truss’ decision to cap household energy prices, which will rise by 25% instead of 80% in October. A view of fuel pumps at a BP service station in central London, Britain, August 2, 2022. REUTERS/Henry Nicholls read more Before the cap, economists had predicted that inflation could top 15% early next year. The government is expected to use public borrowing to compensate energy companies for lower prices – likely to cost around 100 billion pounds ($116 billion) – and has promised other support and tax cuts. That added stimulus to an economy operating near potential, with the lowest unemployment since 1974, will keep domestic inflationary pressures at bay and require the BoE to raise rates more to bring inflation back to its 2% target, they say economists. “While such fiscal interventions will ease short-term pain for consumers and lower headline inflation, they turn upside risks to our medium-term inflation calls,” said Kallum Pickering, senior economist at Berenberg Bank. Financial markets expect BoE interest rates to peak around 4.5% in the middle of next year. There were mixed messages about the future path of inflation in Wednesday’s numbers. The CPI rose 0.5% in August from July on a non-seasonally adjusted basis – below economists’ forecasts for 0.6% and less than the previous month. Prices for fuel and motor oils fell 6.8% in August, their biggest monthly drop since April 2020, and producer price data showed lower pressure on the pipeline. Manufacturers’ costs for raw materials and energy fell 1.2 percent month-on-month in August, the first drop in two years as crude oil prices fell. Factory selling prices also fell slightly in the month. However, the core CPI – which excludes food, energy, alcohol and tobacco prices, and which some economists believe gives a better direction for medium-term price trends – rose to an annualized 6.3% from 6.2 %, the highest since 1992. The BoE is also closely monitoring surveys of public and business expectations of future inflation – which have reached record highs – as well as wages, which are rising faster than the BoE feels, although much less than inflation. read more Reuters Graphics ($1 = 0.8657 pounds) Sign up now for FREE unlimited access to Reuters.comSign up Report by David Milliken. edited by Toby Chopra Our Standards: The Thomson Reuters Trust Principles.
