The latest UK inflation data has shown a slight surprise to the upside, coming in at 6.7%, surpassing the consensus estimate of 6.6%. This figure is a crucial indicator of the country’s economic health.
The core inflation rate, which excludes volatile factors like food, energy, alcohol, and tobacco prices, is often seen as a better gauge of underlying price trends. It fell less than anticipated, dropping to 6.1% in September from August’s 6.2%.
Despite this data, markets still anticipate that the Bank of England (BoE) will maintain interest rates at their current level of 5.25%. Furthermore, the market consensus suggests that rate cuts are not likely until September 2024.
MPC member Pill noted that the decrease in inflation has primarily been driven by a decline in energy prices rather than a reduction in persistent wage growth. The markets will closely monitor energy price movements, especially in light of the recent spike in oil prices due to the conflict between Israel and Hamas. JP Morgan has projected that the Euro may depreciate to parity with the USD as the Middle East conflict threatens to elevate the cost of Europe’s imported energy.
While job growth in the UK is declining sharply, wage growth remains robust. High wage growth contributes to inflation, which currently stands at 6.7%, the highest among G7 countries. The upcoming labour market data will play a significant role in the BoE’s decision-making process regarding future interest rates. It’s worth noting that the Office for National Statistics (ONS) has postponed the release of some key data due to concerns over its accuracy. The remaining employment data is expected to be released on October 24.