UK Inflation unexpectedly drops to 7.9%

19th July 2023

The inflation rate unexpectedly dropped to its lowest in a year to 7.9% for the 12 months to June, according to the Office for National Statistics (ONS).

This is great news as it means that although prices are still rising, the  rate of overall price rises of goods and services in the UK is finally slowing.

Economists had been expecting a less dramatic drop to 8.2% after inflation remained static at 8.7% in April and May, having peaked last October at 11.1%

Falling fuel prices contributed to the drop, while food prices rose less quickly than in June last year, according to the ONS.

Inflation remains well above the target of 2% so don’t expect interest rates to fall anytime soon.

Chancellor of the Exchequer, Jeremy Hunt, welcomed the inflation figures but said the government wasn’t complacent. He said the government knows high prices “are still a huge worry for families and businesses”

The drop in the inflation rate will reduce pressure on the Bank of England (BoE)to raise rates again when they meet in August. They had been expected to raise rates again by 0.25%, from the current 5%  to 5.25%

Today’s slowdown in inflation will be welcomed by businesses, which have been struggling with higher costs, higher wage demands from workers and a squeeze on customer spending power.

Inflation was not the only news in town this morning; see our earlier blog about the 27% increase in business insolvencies in June, compared to the same time last year.

Sterling fell sharply (from $1.304 to $1.293 and from 1.62 Euros to 1.152 Euros)  following the release of the CPI figures which revealed faster than expected slowdown in both headline and core inflation as traders adjusted their interest rates expectations.  These figures suggest BoE may not need to raise interest rates as aggressively as previously anticipated by some economists, potentially easing some monetary policy pressures.