UK Inflation Unexpectedly Drops To 6.7% In August

The latest official data revealed that British annual consumer price inflation (CPI) unexpectedly decreased to 6.7 per cent in August, which has led to questions about whether the Bank of England will increase interest rates.

Despite predictions from economists that CPI would rise to 7 per cent due to an increase in fuel prices and alcohol tax, the inflation rate dropped instead. This surprise decrease caused sterling to fall against both the US dollar and euro, as investors reduced their bets on future interest rate increases by the BoE.

According to the Office for National Statistics, the fall was driven by a drop in hotel prices and airfares, as well as food prices rising by less than the same time last year. The BoE had previously predicted that inflation in August would increase to 7.1 per cent before falling to around 5 per cent in October, which is still more than double its 2 per cent target.

Many investors have anticipated that the BoE will raise interest rates for the 15th consecutive time on Thursday, which would bring the Bank Rate to 5.5 per cent from 5.25 per cent. However, some economists believe that it could mark the end of the BoE's tightening cycle as Britain's economy slows. Core inflation, which does not include volatile food and energy prices, decreased more than the headline rate to 6.2 per cent from 6.9 per cent in July, contrary to predictions from the media poll which pointed to a reading of 6.8 per cent in August.