British inflation unexpectedly slowed in August, data showed Wednesday, hitting an 18-month low and sparking hope this week’s widely-forecast interest rate hike by the Bank of England could be its last for now.
The Consumer Prices Index dropped slightly to 6.7 percent from 6.8 percent in July, the Office for National Statistics (ONS) said in a statement on the eve of the BoE’s latest rate call.
That was the lowest level since February 2022 and confounded market expectations for an acceleration to 7.1 percent on higher energy prices.
Wednesday’s news sent the pound sliding 0.3 percent to $1.2354 in early morning London deals.
It comes one day after data showed eurozone inflation also slowed slightly in August.
“The surprise fall in UK inflation triggered a kneejerk selloff in sterling, as today’s data cements the expectation that the Bank of England’s next rate hike could also be its last,” said Swissquote Bank analyst Ipek Ozkardeskaya.
However, UK inflation still remains the highest in the G7.
The BoE has so far ramped up its key interest rate 14 times in a row to the current level of 5.25 percent in a bid to bring down red-hot inflation.
The data “probably won’t be enough to prevent the BoE from raising interest rates… to 5.50 percent tomorrow”, said Capital Economics analyst Paul Dales.
“But it supports our view that that will be the last hike”.
The ONS added Wednesday that food prices rose by less in August than a year earlier.
This impact was only partially offset by higher energy costs.
“The rate of inflation eased slightly this month driven by falls in the often-erratic cost of overnight accommodation and air fares, as well as food prices rising by less than the same time last year,” said ONS chief economist Grant Fitzner.
“This was partially offset by an increase in the price of petrol and diesel compared with a steep decline at this time last year, following record prices seen in July 2022.”
