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United Kingdom Inflation July 2023

United Kingdom: Inflation moderates in June

Inflation came in at 7.9% in June, down from May’s 8.7%. June’s figure marked the weakest inflation rate since March 2022. Looking at the details of the release, lower price pressures for food and transport drove the reading. While inflation undershot market expectations, it remained far above the BoE’s 2% target rate.

Annual average inflation fell to 9.8% in June (May: 10.0%). Meanwhile, core inflation fell to 6.9% in June, from the previous month’s 7.1%.

Finally, consumer prices rose 0.13% in June over the previous month, moderating from the 0.67% increase seen in May. June’s result marked the weakest reading since January.

Despite the lower-than-expected inflation reading, the Bank of England is still likely to hike rates several more times before the end of the year. That said, the latest data could encourage a 25 basis-point hike at the Bank’s next meeting in August, as opposed to a 50 basis-point hike. As ING’s James Smith said:

“Service-sector CPI slipped back from 7.4% to 7.2%, contrary to both the Bank of England’s and our own forecasts for this to remain unchanged in the near term […] All in all, we now expect headline inflation to dip back to 6.6% in July, owing to the near-20% fall in household energy prices. Core inflation should slip back to roughly the same level too. Is this enough to convince the Bank of England to opt for a 25bp rate hike in August? We think it probably will – but it’s going to be a close call.”

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