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Surprise fall in UK inflation eases pressure on BoE

Surprise fall in UK inflation eases pressure on BoE

by host

Consumer inflation in the U.K. fell surprisingly in August, easing the pressure on the Bank of England to deliver a 15th straight rise in interest rates when its decision-makers meet Thursday.

The consumer price index rose only 0.3 percent from July, rather than the 0.7 rise expected. That brought the headline rate of inflation down to 6.3 percent from 6.4 percent the previous month. The Office for National Statistics said the decline was due largely to food and to hotel prices. Food prices, in particular, have been a huge political headache for both the BoE and the government over the past couple of years.

The news casts real doubt over the outcome of Thursday’s meeting of the Monetary Policy Committee. Financial markets had overwhelmingly expected the MPC to raise the Bank Rate by another quarter point to 5.5 percent. However, both BoE Governor Andrew Bailey and Chief Economist Huw Pill have in recent weeks signaled reluctance to raise rates any further, given past hikes have yet to take their full effect on the U.K. economy.

The pound fell half a cent to a four-month low of $1.2334 in response.

“We believe the Bank of England will still raise rates tomorrow, but today’s data will embolden those pushing for this to be the final rate hike,” said Raoul Ruparel, director of the Boston Consulting Group’s Center for Growth, in emailed comments.

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