For the first time in over a year, the UK consumer price index dropped in August as gas prices declined, giving an unexpected respite to the Bank of England and consumers. However, with the cost of living crisis continuing to persist in the UK, food prices remained upward.
Britain’s August CPI was 9.9% annually
According to figures released by the Office for National Statistics, the consumer price index was up 9.9% annually, slightly below economists’ consensus estimate o 10.2%. Also, CPI dropped from 10.1% reported in July.
Interestingly, economists have warned that inflation will likely peak in October at 11% once the new consumer energy tariff cap commences. But, equally, it might be sluggish to fall because of the latest fiscal stimulus from the government and underlying pressures.
The report said that the drop in fuel prices significantly impacted the change in CPI and CPIH yearly inflation rates from July through August 2022. However, increasing food prices had the most considerable upward contribution to the rate changes.
Capital Economics’ chief UK economist Paul Dale said:
The Bank of England will have to continue turning the screws.
BoE to increase the interest rate to 2.5% next week
The Bank of England was expected to hike interest rates this week, but the decision has been pushed forward following Queen Elizabeth’s death. As a result, there is an 80% probability that the UK central bank will increase rates to 2.5% on September 22, 2022. Surprisingly this will be the largest interest rate hike in over three decades, excluding the efforts to bolster the sterling pound during the exchange crisis of 1992.
According to consensus predictions from economists, the Bank of England is likely to increase the rate by a half-point increase and continue increasing rates into 2023 despite the growing risk of an economic downturn.
Britain hit by the fuel crisis in Europe
The UK has experienced the worst cost-of-living crisis in years as energy and food prices surged and wage increases failed to match inflation, resulting in one of the biggest wage declines in years. Surprisingly the country has been among the most hit nations with the increase in natural gas prices due to the conflict between Russia and Ukraine.
Currently, the UK’s inflation is among the highest among the G7 countries but below other nations like Netherlands and Spain.
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