Britain’s Inflation Rate Slows Slightly to 9.9 Percent

Consumer prices in the UK rose 9.9% in August from a year earlier, the rate of inflation easing slightly and falling for the first time in almost a year, signaling that inflation may have peaked or very close to that.

While this sign of turning the trajectory of inflation is likely to provide some relief to lawmakers and policymakers, it will provide only limited comfort to consumers. With prices rising at the fastest pace in 40 years, households are still feeling a tight budget, and the Bank of England will continue to come under pressure to raise interest rates.

The inflation rate has fallen from 10.1 percent in July, the Office for National Statistics said on Wednesday. Falling motor fuel prices have dragged down the inflation rate, as well as a smaller contribution from food and clothing prices.

The inflation rate last fell in September 2021, when the impact of Wide discounts in restaurants The previous summer had omitted the annual calculations of price changes.

Britain’s inflation rate has been predicted to hit 13% in October, according to a forecast from the Bank of England last month, and could then pick up again in January – each spike after the policy. The government raised the price cap on household energy bills to reflect increased wholesale natural gas prices. But those predictions became obsolete last week when the new prime minister came to power, Liz Truss, announced that she would freeze energy bills for the next two winters to an average of £2,500 ($2,880) a year.

Ms. Truss said she hoped the move would reduce the projected inflation rate by 5 percentage points.

Analysts were also quick to cut their forecasts.

Inflation will peak slightly higher in October, at close to 11%, and then “look like it will fall sharply next year” due to the government’s new energy price cap, said Samuel Tombs, an economist. at Pantheon Macroeconomics, wrote in a note to clients Wednesday. .

Besides reducing inflation, the policy is expected to put more money in people’s pockets and lessen the severity of any upcoming recession.

But this policy risks prolonging high inflation, even if the overall rate does not move higher. Freezing energy bills would allow households to spend less money on gas and electricity, which they can spend on restaurants and travel instead. This continues to put pressure on the central bank to rein in the economy by raising interest rates in an effort to prevent high inflation. The bank targets an inflation rate of 2 percent.

Core inflation, a measure of price appreciation that excludes volatile food and energy prices, was 6.3% in August, up slightly from 6.2% in July.

Earlier last week, what the Bank of England was concerned with, Huw Pill, the central bank’s chief economist, said early last week, was the impact of fiscal policy changes in the medium term, in contrast to any major short-run decline in the inflation rate.

Economists expect the bank to raise interest rates by half a percentage point, to 2.25 percent, when policymakers meet next week. The meeting was postponed for a week, until after a period of national mourning for Queen Elizabeth II.

But the worsening outlook for medium-term inflation makes it less likely that policymakers need to “strangle the economy” by raising interest rates as high as 4%, which traders recently predicted. , wrote Mr. Tombs.

The inflation path in the UK is heavily influenced by energy prices, especially natural gas. But even if energy prices fall, the impact on inflation will persist. Over time, businesses and workers will continue to adjust prices and demand higher wages to make up for lost profits and reduced purchasing power caused by higher inflation. This challenge, and the effort to keep expectations of future inflation low, is why central banks have raised interest rates by larger increments.

On Tuesday, the data showed that Inflation in the United States not as much as economists expected. This puts pressure on the Federal Reserve to raise interest rates aggressivelyThe S&P 500 fell more than 4%, its worst day since June 2020anticipate the actions of the central bank.

For many UK consumers, price increases remain high. Food prices rose 13.1% in August from a year earlier, the fastest pace in 14 years, especially for milk, cheese and eggs, driving inflation higher.

Ocado, an online grocery company, said on Tuesday that its customers buy less and look for “value-for-money items” in response to inflationary pressures. Its food prices have risen 7% in the past year.

Wages don’t keep up with these high prices. Payouts, excluding bonuses and adjusted for inflation, fell 2.8% in the three months to July from a year earlier, one of the biggest declines since comparable records. started two decades ago.

Across the country, workers in several industries have strike to demand higher wages to match the increasing cost of living. Another eight-day hike will begin at the port of Felixstowe, Britain’s largest container pier, later this month, overlapping the strikers at the port of Liverpool.

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