Closing post
Time to recap, after a potentially pivotal day in Britain’s fight against inflation.
UK inflation fell further than expected in June to 7.9% amid a sharp fall in petrol prices, raising hopes that the Bank of England may not raise interest rates as high as feared in the months ahead.
The Office for National Statistics said the annual inflation rate as measured by the consumer prices index resumed a downward path after unexpectedly sticking at 8.7% in May.
The drop exceeded City forecasts for a decline to 8.2%, and took inflation to its lowest since March 2022.
Financial markets responded by betting that the Bank of England would no longer drive interest rates above 6% early next year. They are now expected to peak at around 5.75% around the end of this year.
Markets also predicted that the central bank would introduce a more modest quarter-point rise in borrowing costs at its next policymaking meeting in August, instead of a tougher half-point increase from the current level of 5%.
Sanjay Raja, Deutsche Bank’s chief UK economist, says:
The probability of a quarter point hike is higher, following the June CPI miss.
ING’s James Smith said that we finally have good news on UK inflation.
Here’s a breakdown of the key price changes:
Shares rallied strongly in London, with the FTSE 100 posting its biggest points gain of the year as traders took confidence that interest rates will peak lower than feared. Housebuilders led the rally.
UK government bonds also rallied, which could push down the cost of mortgages in the coming days.
The pound tumbled by 1.5 cents against the US dollar.
The drop in inflation, from 8.7% in May, could make it easier for Rishi Sunak to hit his target of halving inflation this year…
Bank of England deputy governor Sir Dave Ramsden has warned, though, that inflation remains “much too high”.
Warning that further interest rate rises are coming, Ramsden said:
CPI inflation has begun to fall significantly but remains much too high.
The MPC has consistently stressed that monetary policy decisions will address the risk of more persistent strength in domestic wage and price settling.
In other news…
Cross-Channel transport bosses have warned MPs that “time is running out” for the UK to prepare for the EU’s entry/exit system (EES).
Australia’s Macquarie Group has tightened its grip on the UK’s energy sector today by buying another 20% of National Grid’s UK gas transmission and metering business.
Oil giant BP has been fined £650,000 over health and safety failings after a worker fell through an open grating on an offshore platform into the sea and died.
The UK’s competition regulator has provisionally cleared semiconductor designer Broadcom’s $69bn deal to buy cloud computing firm VMware.
Homebuilders clock best day since 2008
UK homebuilders have racked up the biggest percentage gain in their shares since 2008, after signs of slowing inflation helped to bolster hopes that UK interest rates will not rise as high as once thought.
Beaten down homebuilders surged 7.0%, Reuters reports, as investors cheered data showing British inflation fell to a more than expected 7.9% in June, its slowest pace in more than a year. Economists were forecasting a rise of 8.2%.
