Skyline view of the financial district of the City of London.
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LONDON – Inflation in the United Kingdom cooled sharply in June to an annual rate of 7.9% below consensus expectations.
Economists polled by Reuters expect headline consumer prices to rise 8.2% in May, above expectations for an 8.7% rise, but annualized price gains continue to run well above the Bank of England’s 2% target.
On a monthly basis, the headline CPI rose 0.1%, That was below the consensus forecast of 0.4%. Core inflation, which excludes volatile energy, food, alcohol and tobacco prices, remained at a high annual rate of 6.9%, but was down from a 31-year high of 7.1% in May.
The National Bureau of Statistics said on Wednesday that the decline in vehicle fuel prices had the greatest impact on the annualized monthly change in the CPI. Food prices rose in June, but at a slower pace than a year earlier.
The ONS added: “The interest rate change did not generate a large offsetting upward contribution.”
GBP Sterling fell 0.8% against the dollar shortly after the data, and was hovering above $1.29 by 7:20 am London time.
Britain has experienced persistently high inflation, which both the government and the Bank of England have warned could become entrenched in the economy as wage prices rise from a cost-of-living crisis and a tight labor market.
BoE Governor Andrew Bailey and U.K. Finance Minister Jeremy Hunt told an audience in the City of London earlier this month that the high-wage deal was hurting their efforts to curb inflation.
The Organization for Economic Co-operation and Development forecast last month that Britain would experience the highest inflation rate of any advanced economy this year, with headline annual inflation at 6.9%.
The Bank of England raised interest rates by a massive 50 basis points last month, its 13th consecutive hike, as the Monetary Policy Committee struggles to curb demand and rein in inflation.
After raising the UK benchmark interest rate from 0.1% to 5% over the past 20 months, the market expects another sharp half-point hike to 5.5% at the MPC’s August meeting.