UK Inflation’s Down From Its Former Peaks

UK Inflation’s Down From Its Former Peaks
Daniel Johnston

4 months ago2 mins

What’s going on here?

British inflation is shrinking from its former peaks, according to data out on Wednesday.

What does this mean?

The UK's inflation rate has been on a wild ride recently – outpacing expectations for the past four reports despite interest rates’ uphill scramble. But in June that hot streak finally cooled off: overall prices rose 7.9% compared to the same time last year, the lowest reading in over a year and the biggest undershoot of expectations since July 2021. That was partially down to sliding fuel prices and grocery bills, but they weren't the only heroes: core inflation, which overlooks those volatile food and fuel expenses, also fell from the previous month’s 31-year high. And given that's one key metric the Bank of England (BoE) uses to monitor underlying price pressures, that’s a pretty promising sign.

UK inflation

Why should I care?

The bigger picture: All in good time.

This data suggests that rate hikes are finally making inflation get in line, after months of uncontrollable leaps and jumps. So it’s no wonder markets are feeling optimistic – predicting that interest rates will now peak below 6% and halving the odds of a 0.5-percentage-point hike in August. But let's not break out the party poppers just yet: Britain’s still got the highest inflation of any advanced economy, and some economists think it’ll be 2025 before it comes down to the central bank’s 2% target.

UK vs advanced economies

For markets: Building hopes.

The prospect of rates not peaking as high as once feared will have homebuilders smiling their biggest, cheesiest grins. See, when borrowing costs climb, so do mortgage rates – and when mortgage rates go up, sales take a nosedive, and house prices tend to follow suit. That might explain why shares in UK property-related stocks shot up when the news broke: the FTSE 350 homebuilders index even jumped 7%, on track for its biggest one-day gain since 2008.

UK property stocks up


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