U.K. Inflation at 6.7% in August: Below Expectations, Implications for Monetary Policy

U.K. Inflation at 6.7% in August

The U.K. inflation rate for August was 6.7%, slightly below expectations and a small decrease from the previous month.

On a monthly basis, the consumer price index (CPI) increased by 0.3%.

Economists surveyed by Reuters had anticipated an annual CPI of 7% and a monthly increase of 0.7%, primarily driven by higher prices at the petrol pump. In July, the annual inflation rate stood at 6.8%, with a monthly decline of 0.4%.

The Office for National Statistics stated that “Food prices in August 2023 rose less than they did a year ago, which contributed to the decrease in both the CPIH and CPI annual rates. Accommodation services, known for their volatility, also experienced a decline in prices in August 2023.”

“The largest factor contributing to the change in annual rates is the rise in motor fuel prices.”

The core CPI, which excludes volatile items such as food, energy, alcohol, and tobacco, was 6.2% for the 12-month period ending in August, down from 6.9% in July. While the goods rate increased slightly from 6.1% to 6.3%, the services rate substantially slowed from 7.4% to 6.8%.

The Bank of England is scheduled to announce its next monetary policy decision on Thursday in its ongoing efforts to bring inflation closer to its target of 2%.

The market has generally anticipated a 25-basis-point increase in interest rates, which would raise the main bank rate to 5.5%, its highest level since December 2007.

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