Home Business NewsBusiness Relief as UK inflation falls below 8%

Relief as UK inflation falls below 8%

by LLB Editor
19th Jul 23 11:00 am

Finally, some good news on the inflation front as the headline number dropped below 8% for the first time since March 2022.

Falling prices at the pump which have caused such controversy of late, were one of the biggest contributors to the larger than expected fall in inflation, and whilst food prices are still going up they’re not going up quite as fast as they were.

Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures: “But relief that the numbers finally seem to be going in the right direction will be short-lived for policy makers and politicians who understand that the average household won’t care about cooling inflation, they just want prices to go down, and with one or two exceptions we’re still a fair way away from that.

“Looking at input prices, the cost of raw materials going into our factories, there’s clearly some good news to be had with prices falling by 2.7% instead of creeping up insidiously. But output prices are still rising a bit, and when you look back to 2021 levels you get a clear picture of the mess were all currently in.

“And as those prices have undermined our living standards, we’ve demanded pay increases, and whilst that extra cash hasn’t numbed the pain entirely, it has helped where it has been given.

“For those left behind, strikes have been the obvious course of action and the impact of that is still being felt in our productivity and growth numbers.

“For employers who have put their hands in their pockets, they’re likely to have looked at their own books and decided their only course of action was to pass on at least some of the pain. And that’s impacting core inflation, which is still looking scarily sticky.

“Behind closed doors at the Bank of England there are likely to be some pretty intense discussions taking place between now and their next interest rate decision. This time the bank got its sums right, it had expected headline inflation in June to fall to 7.9% but MPC members won’t be able to ignore that core figure.

“Markets are now pricing in a less strident move in August, with a rate hike of just a quarter percentage point rather than the half point that most had been considering just a few weeks ago and looking further out the expectation is for rates to top off at 5.75% rather than over six which had been on the cards.

“But as seems the way of things during this topsy turvy time, the good news comes with a slice of bad, and the pound has fallen back a touch as rate expectations have been tempered.

“Those with mortgages up for renewal in the next few months won’t care about the bad news, but a strong pound means the cost of imports is tempered so the slight cooling off will mitigate some of that impact.

“And there will be plenty of people still asking why the UK is such an outlier.  Why the rest of the G7 has managed to turn things around more quickly and what does it mean for the future?”

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