The headline consumer price index (CPI) increased by 0.3% on a monthly basis. Economists surveyed by Reuters predicted the headline figure would reach 7% year-on-year and 0.7% month-on-month, due to a small rise in fuel costs.
The Office for National Statistics reported that August's U.K. inflation rate fell below expectations to 6.7%, stoking speculation that the Bank of England may pause further interest rate increases when announcing its next policy decision on Thursday. On a month-on-month basis, the headline consumer price index (CPI) rose by 0.3%. Prices for food and accommodation services were the main downward contributions, while motor fuel prices had the biggest upward effect. Core CPI, omitting volatile food, energy, alcohol and tobacco prices, came in at 6.2% on the year and 6.8% for services.
Experts from the Boston Consulting Group's Centre for Growth noted that this dip in core inflation, coupled to nominal wage growth, bodes well for households and further suggests that the economy is cooling. The market has priced in a rate hike on Thursday, which would take the main bank rate to 5.5%. However, after the inflation surprise on Wednesday, odds of a pause have risen from 20% to almost 50%. UBS chief investment officer Caroline Simmons expressed that while a hike is still likely, the recent developments are indicative of the downwards forces on inflation.
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