Interactive Investor

UK inflation falls to 6.8%

Light at the end of the cost-of-living tunnel shines brighter, but the path back to normal remains a winding one.

16th August 2023 08:04

Myron Jobson from interactive investor

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Inflation continues to moderate and head in the right direction, which is a welcome sign for those who have struggled to maintain financial buoyancy because of high costs. But it remains far too high for comfort.

“However, the latest slowdown in inflation represents the kind of progress needed to get inflation down to the more sustainable 2% target.

“The easing of inflation was led by a fall in energy costs, which fed through to households at the start of July when the new lower energy price cap came into effect. Businesses have also benefited from a reduced cost burden from lower gas and electricity prices, which should continue to feed into lower core inflation – which remained stuck in the mud in July, unchanged from June.

“But inflation continues to hit hard and remains persistent in other categories that are necessities. The growth in food prices remains difficult to stomach, ticking higher in July month on month - although by less than in July 2022. Many Britons are also reeling from the uptick in housing costs, with higher interest rates setting off a chain reaction in the property market, which has pushed up the cost of mortgages and rents.

“The light at the end of the cost-of-living tunnel shines brighter following the latest fall in inflation, but the path back to normal remains a winding one. Optimism over the fall in inflation is tempered by strong wage growth, which soared to a record high in the April to June period, stoking concerns that price rises will take longer to ease. The recent uptick in oil prices, resulting from producers curbing production to drive prices higher, could keep CPI elevated in the near future.

“These factors give the Bank of England plenty of food for thought at its next meeting to decide interest rates in September. The UK’s central bank continues to face a tough balancing act of taming inflation without triggering a recession.”

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