- UK inflation slowdown eases interest rate hike pressure
- Inflation reaches lowest level in over a year
- Economists adjust expectations for rate increases
As a result of the UK’s unexpected decline in inflation in June, it is expected that interest rates will rise less sharply.
Since December 2021, the Bank of England has raised interest rates thirteen times to curb skyrocketing inflation, resulting in higher borrowing costs for millions.
Inflation slowed to 7.9% in June, down from 8.8% in May, reducing the pressure on the Fed to act, according to experts.
Inflation in the United Kingdom has reached its lowest level in more than a year.
The Office of National Statistics (ONS), which publishes the figures, reports that falling petroleum prices contributed to the slowdown in June, while food prices are rising at a slower rate.
However, the UK’s inflation rate remains nearly four times higher than the Bank of England’s official target of 2% and significantly higher than other developed nations.
In the United States, inflation is 3%, while it is 5.5% in the eurozone.
“It is a large drop, but let’s not forget that last month we saw no change in headline inflation,” ONS chief economist Grant Fitzner told. “In some ways, what we are seeing this morning is catching up with the falls we’ve seen in other similar countries.”
“It still appears that we may have the highest inflation rate among the G7 [group of developed nations]; therefore, we have a ways to go.”
Since last year, food, energy, and service costs have skyrocketed, compressing household incomes.
The Bank has raised interest rates from near zero to their current level of 5% to address the issue. The theory is that by increasing the cost of financing, consumers will spend less and price increases will moderate.
Mortgage borrowing costs have reached their greatest level in 15 years due to rising interest rates, leaving millions of homeowners with higher monthly payments.
The average two-year fixed mortgage rate increased to 6.81% on Wednesday, while the five-year rate was at 6.31%. Last year at this time, rates were closer to 3%.
Inflation has ultimately declined by more than anticipated, prompting economists to scale back their expectations for immediate interest rate hikes, although they still anticipate future increases.
