UK Inflation Finally Reaches Target Level of 2%! Is A Rate Reduction Coming?
The UK now had reason to breathe a sigh of relief on Wednesday as headline inflation hit the Bank of England's 2% target for the first time in nearly three years.However, this figure only reinforces traders' confidence that interest rate cuts will not happen in the near future.Only a 5% chance of a Bank Rate cut during the BOE meeting on Thursday was expected by the market after noting a stronger possibility of such a move earlier in the week. The bet for a reduction in August is also reduced to about 30%.While the 2% inflation reading is a particularly important milestone as British politicians begin their campaign ahead of the general election in just over two weeks, it has been expected for some time and was largely driven by a sharp year-on-year decline in energy prices. Fluctuations in this rate are expected to occur in the coming months as the influence of energy prices diminishes.Policymakers also focused on services inflation, which is key to understanding domestic price pressures in a service-oriented economy, coming in at 5.7, higher than the 5.5% forecast by economists in a Reuters poll.Core inflation, excluding volatile components such as energy, food, alcohol and tobacco, remained well above the central bank's long-term average at 3.5%.For now, whether the BOE cuts rates in August or September remains a question.Average UK wage growth without bonuses remained high at 6% in June, despite signs of an easing labor market. At its last meeting in May, the central bank said recent inflation readings were "encouraging," but the chance of a rate cut would be assessed at each meeting based on the latest data.
The UK now had reason to breathe a sigh of relief on Wednesday as headline inflation hit the Bank of England's 2% target for the first time in nearly three years.
However, this figure only reinforces traders' confidence that interest rate cuts will not happen in the near future.
Only a 5% chance of a Bank Rate cut during the BOE meeting on Thursday was expected by the market after noting a stronger possibility of such a move earlier in the week. The bet for a reduction in August is also reduced to about 30%.
While the 2% inflation reading is a particularly important milestone as British politicians begin their campaign ahead of the general election in just over two weeks, it has been expected for some time and was largely driven by a sharp year-on-year decline in energy prices. Fluctuations in this rate are expected to occur in the coming months as the influence of energy prices diminishes.
Policymakers also focused on services inflation, which is key to understanding domestic price pressures in a service-oriented economy, coming in at 5.7, higher than the 5.5% forecast by economists in a Reuters poll.
Core inflation, excluding volatile components such as energy, food, alcohol and tobacco, remained well above the central bank's long-term average at 3.5%.
For now, whether the BOE cuts rates in August or September remains a question.
Average UK wage growth without bonuses remained high at 6% in June, despite signs of an easing labor market. At its last meeting in May, the central bank said recent inflation readings were "encouraging," but the chance of a rate cut would be assessed at each meeting based on the latest data.
