There was a sigh of relief from the British economy today as inflation figures were down on the previous month.
The UKs Consumer Price Index (CPI) inflation went up by 7.9% in the 12 months to June, down from 8.7% in May. It was a sharper fall than expected (8.2% forecast) bringing inflation down to its lowest point in a year.
The CPI measures the change in prices of a representative basket of goods and services over a given period.
Tide turning?
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “The inflationary tide is turning faster than expected and although consumers and companies may still struggle amid the wave of higher prices, they are wading out of the danger zone.”
She added: “Coming in at 7.9 % headline CPI is still almost quadruple the Bank of England’s target, but the current of price increases is not as strong, and the signs are it’ll become weaker as we head through the year. Receding food inflation is hugely welcome for households who face swimming in debt as their bills have mounted rapidly. Core inflation stripping out volatile food and energy, is also moving in the right direction, coming in 6.9% in the 12 months to June 2023, down from 7.1% in May.”
The slowdown in the rate of price rises will be taken as a signal by the government and Bank of England that the painful medicine of interest rate hikes is working. But paradoxically experts now believe that with inflation finally slowing the UK may avoid further big interest rate rises.
Nicholas Hyett, investment manager at Wealth Club, said that June’s inflation figures were comfortably below expectation and largely driven by changes in non-core factors like motor fuel and food prices and he noted that core inflation is down too and no sectors have reported dramatic upticks in price.
Hopes for the economy
He said: “While one swallow doesn’t make a summer, there will be real hopes that this marks a turning point for UK inflation. It’s been stubbornly high even as other economies have started to see price rises ease, and that’s created a cruel cost of living crunch.”
Hyett added: “With other indicators, such as corporate insolvencies, also suggesting the economy is weakening, the next challenge is to keep the economy from collapsing into the deep freeze and triggering a painful recession. The Bank of England may ease off the pedal where interest rate rises are concerned, but its careful balancing act isn’t over yet.”
