LONDON, 14th August, 2024 (WAM) -- Britain’s inflation rate increased less than economists and the Bank of England had expected, prompting traders to step up bets on a further loosening in interest rates.
Bloomberg reported on Wednesday that the Consumer Prices Index rose 2.2 percent in July after a 2 percent gain in each of the two previous months, based on the figures released by the Office for National Statistics. Economists had expected a reading of 2.3 percent, and the BOE was forecasting 2.4 percent.
While it was the first increase in headline inflation this year, a sharp cooling in services and core price growth also may ease concerns for policy makers that inflationary forces are still lingering. The pound fell, and investors fully priced in two quarter-point rate cuts this year.
Traders added to bets on interest-rate cuts from the BOE, fully pricing two more quarter-point reductions by the end of the year. The pound fell as much as 0.3 percent to US$1.2820, but is still the best performing Group-of-10 currency this year, largely due to bets the BOE will keep rates relatively high.
Services inflation — which BOE officials are watching closely for signs of domestic price pressures — cooled to 5.2 percent from 5.7 percent, the lowest reading in more than two years and below the 5.6 percent the BOE was forecasting. Core inflation, excluding food and tobacco prices, hit its lowest since September 2021.
Britain took longer to rein in inflation than other Group of Seven economies, but the latest readings show it is in better shape than the euro area and comparable to the US harmonized rate.