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UK Consumer Price Inflation Eases To 17-Month Low Amid Energy Price Drop

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On Wednesday, the UK’s consumer price inflation rate revealed a welcome fall in July, reaching its lowest level in 17 months.

Lower energy costs contributed significantly to the decline, which offered some comfort to households struggling with the ongoing cost of living issue.

Although this development is positive, the Bank of England (BoE) regularly monitors key indicators, and their persistently high levels have raised expectations that the central bank will continue its program of interest rate increases.

The annual rate of inflation, as measured by the consumer price index (CPI), reached 6.8% in July, according to data from the Office for National Statistics (ONS).

This figure represents a significant drop from June’s 7.9% rate, aligning with economists’ predictions.

The decline in the headline inflation figure is a step away from the 41-year high of 11.1% recorded in October, but it still remains well above the central bank’s target of 2%.

The reduction in inflation was primarily attributed to lower gas and energy prices, as the sharp increases observed in the previous year were no longer impacting the annual comparison.

 

Additionally, food price inflation, which surged following Russia’s invasion of Ukraine, also exhibited signs of easing.

Despite the positive trend in headline inflation, market expectations of another interest rate hike by the BoE next month remain unchanged, particularly as wages continue to rise at a record pace.

Earlier this month, the central bank raised its benchmark interest rate to a 15-year high of 5.25% and indicated its commitment to keeping rates elevated to counter persistent inflation.

Higher interest rates play a role in curbing inflation by increasing the cost of borrowing for consumers and businesses, affecting purchases of assets like homes, cars, and equipment.

“While price rises are slowing, we’re not at the finish line,” Treasury chief Jeremy Hunt said in response to the figures.

“We must stick to our plan to halve inflation this year and get it back to the 2% target as soon as possible,” Hunt noted.

Overall, the UK’s journey toward achieving stable inflation continues, with various factors contributing to the complex economic landscape. The balance between managing inflation, supporting economic growth, and addressing the concerns of hard-pressed households remains an ongoing challenge for policymakers.

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