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UK consumer price inflation falls unexpectedly

UK inflation falls for first time in nearly a year Reuters. FILE PHOTO: A employee arranges produce in the Sainsburys supermarket in Richmond, west London, Britain, June 27, 2022. REUTERS/Henry Nicholls//File Photo

By David Milliken and Andy Bruce

LONDON (Reuters) -Lower fuel costs caused an urgent fall in British inflation in August, official figures showed on Wednesday, offering some respite to households and the lender of England after inflation hit a 40-year high the month before.

The annual rate of consumer price growth fell to 9.9% in August from 10.1% in July, its first drop since September 2021 and below economists’ expectations in a Reuters poll for this to go up further to a brand new most of 10.2%.

Sterling weakened on the news headlines, but economists said they expected inflation to go up further later this season, and that the lender of England would still need to raise rates in a few days after postponing this week’s decision after Queen Elizabeth’s death.

“Overall and core UK CPI inflation haven’t peaked yet. Therefore, the lender of England will need to continue turning the screws,” said Paul Dales, chief UK economist at consultants Capital Economics.

CPI rose by 0.5% from July to August on a non-seasonally adjusted basis – below economists’ forecasts for this to go up by 0.6%, exactly the same pace because the month before.

Charges for vehicle fuels and lubricants dropped by 6.8% in August, their largest monthly fall since April 2020.

However, Britain continues to be battling the best inflation on the list of world’s seven largest advanced economies, even though some EU countries – like the Netherlands and Spain – have higher rates.

prices have surged across Europe following Russia’s invasion of Ukraine, even yet in countries such as for example Britain which imported hardly any.

Interest futures show a 79% chance that the BoE will raise rates by 75 basis points to 2.5% on Sept. 22, which may be its biggest rate rise since 1989, excluding a short try to bolster sterling throughout a 1992 exchange rate crisis.

The BoE’s task of returning inflation to its 2% target has been made slightly easier, for a while at the very least, by new Prime Minister Liz Truss’s decision to cap household energy prices, which have been because of rise 80% in October.

Before that, inflation have been vulnerable to exceeding 15% early next year, in accordance with some economists.

Capital’s Dales said he now expected inflation to peak at 11% in October, once the cap takes effect – below the BoE’s forecast last month of a peak above 13%.

Separate factory cost and value data brought very good news on inflation pressure in the offing, being weaker than all forecasts.

Input charges for materials and energy fell 1.2% in monthly terms in August, the initial fall in 2 yrs and driven by falling prices. Factory prices also fell slightly on the month.

Core CPI – which excludes food, energy, alcohol and tobacco prices, and which some economists think provides better steer of long-term price trends – found to 6.3% from 6.2%, its highest since 1992.

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