UK inflation in surprise drop to 18-month low

LONDON

British inflation unexpectedly slowed in August, data showed yesterday, hitting an 18-month low and sparking hope this week's widely-forecast interest rate hike by the Bank of England (BoE) could be its last for now.

The Consumer Prices Index dropped slightly to 6.7 percent from 6.8 percent in July, the Office for National Statistics (ONS) said in a statement on the eve of the BoE's latest monetary policy decision.

That was the lowest since February 2022 and confounded expectations for an acceleration to 7.1 percent on higher energy prices.

Finance Minister Jeremy Hunt said his Conservative government's plan to lower inflation is "working" but conceded that the rate is "still too high."

It comes one day after data showed eurozone inflation also slowed slightly in August.

"The surprise fall in UK inflation triggered a kneejerk selloff in sterling, as today's data cements the expectation that the Bank of England's next rate hike could also be its last," said Swissquote Bank analyst İpek Özkardeşkaya.

Despite the drop, British inflation remains the highest in the G7 group of rich nations, after peaking at a 41-year high of 11.1 percent in October last year.

Elevated inflation has prompted almost 18 months of regular stoppages by public and private-sector workers whose pay is failing to keep pace.

In the latest walkout, medical consultants and junior doctors working in England for the country's National Health Service held their first ever joint strike yesterday.

The BoE has so far ramped up its key interest rate 14 times in a row to the current level of 5.25 percent in a bid to bring down red-hot inflation.

The data "probably won't be enough to prevent the BoE from raising interest rates... to 5.50 percent tomorrow," noted Capital Economics analyst Paul Dales.

"But it supports our view that that will be the last hike."