UK Consumer Price Index (“CPI”) numbers were released on Wednesday, showing that UK inflation cooled to a 15-month low. Data released showed CPI fell to 7.9% in June, down from a prior of 8.7% and below the consensus forecasts of 8.2%. Financial markets reacted positively with the FTSE 100 rising 1.8% and 10-year Gilt yields fell to 4.2% having reached a high of 4.65% earlier in the month.
Whilst we do not suggest that the fight against inflation has been won, it does appear the UK is moving in the right direction. Chancellor Jeremy Hunt stated after the figures “Inflation is falling and stands at its lowest level since last March, but we aren’t complacent and know that high prices are still a huge worry for families and businesses. The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”
Markets are now pricing in that the Bank of England will hike rates by 25 basis points (0.25%) when they meet at the beginning of August with the terminal rate, an indicator of stable interest rates, now expected to reach 5.82% in February 2024 with the possibility of cuts as early as June 2024. This is a dramatic shift from only a few weeks ago when rates were expected to peak above 6% and stay higher for longer.