Monday, June 24, 2024

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European

The unexpected drop in UK inflation reduces the urgency for action from the Bank of England.


In August, there was a unexpected decrease in consumer inflation in the U.K., which may relieve the Bank of England from the need to increase interest rates for the 15th consecutive time at their upcoming meeting on Thursday.

The cost of living increased by only 0.3 percent in July, lower than the expected rise of 0.7 percent. This caused the overall inflation rate to decrease from 6.8 percent to 6.7 percent compared to the previous month.

The Office for National Statistics reported a decrease primarily caused by food and hotel prices. The rise in food prices has been a significant issue for both the BoE and the government in recent years.

The recent developments have raised uncertainty about the results of the upcoming meeting of the Monetary Policy Committee on Thursday. The majority of financial markets anticipated a quarter-point increase in the Bank Rate to 5.5 percent. However, BoE Governor Andrew Bailey and Chief Economist Huw Pill have expressed hesitance in further raising rates, citing that previous increases have not yet had their intended impact on the U.K. economy.

The British pound declined by half a cent, hitting a four-month low of $1.2334, but later regained some of its value.

According to Raoul Ruparel, director of the Boston Consulting Group’s Center for Growth, the Bank of England is expected to increase rates tomorrow. However, today’s data may strengthen the argument for this to be the last rate hike. This was stated in an email.