Home Business Inflation in Britain slowed slightly to 9.9 percent

Inflation in Britain slowed slightly to 9.9 percent

by SuperiorInvest

Consumer prices in Britain rose 9.9 percent in August from a year earlier, a slight easing of the inflation rate and the first drop in almost a year, signaling that inflation may have peaked.

While this indication of a reversal in the trajectory of inflation is likely to bring some relief to lawmakers and policymakers, it will provide only limited comfort to consumers. With prices rising at their fastest rate in 40 years, households are still feeling the pressure on their budgets and the Bank of England will continue to be under pressure to raise interest rates.

The inflation rate fell from July’s 10.1 percent. The rate of inflation was pulled down both by a reduction in fuel prices and by a smaller increase in the price of food and clothing.

The inflation rate last fell in September 2021, when the effects of the end of extensive discounts in restaurants the previous summer was dropped from the annual calculations of price changes.

Britain’s inflation rate was expected to reach 13 percent in October, the Bank of England forecast last month, and then may have risen again in January – each time jumping after the government raised the price cap on household energy bills to counter rising wholesale gas prices. But those predictions became obsolete last week when newly installed prime minister Liz Truss announced she would freeze energy bills for the next two winters at an average of £2,500 ($2,880) a year.

Ms Truss said she expected the move to reduce the expected rate of inflation by up to 5 percentage points.

Analysts also quickly cut their forecasts. At Investec, analysts said this week that a current price freeze would see inflation peak at 10.1 percent in July and fall back to 8.6 percent in January. In addition to curbing inflation, the policy is expected to put more money in people’s pockets and mitigate the severity of any coming recession.

However, the policy carries the risk that high inflation will be more persistent, even if the overall rate does not go higher. A freeze on utility bills will allow households to allocate less money to gas and electricity and spend it on restaurants and travel instead. This keeps pressure on the central bank to clamp down on the economy by raising interest rates in an effort to curb high inflation. The bank aims for a two percent inflation rate.

Core inflation, a measure of price growth excluding volatile energy and food prices, was 6.3 percent in August, up slightly from 6.2 percent in July.

What the Bank of England is interested in, the central bank’s chief economist Huw Pill said earlier last week, is the medium-term impact of fiscal policy changes, as opposed to any near-term decline in headline inflation.

Economists expect the bank to raise interest rates by another half a percentage point at its meeting next week. The meeting was postponed for a week, until the period of state mourning for Queen Elizabeth II.

Source Link

Related Posts

%d bloggers like this: