Inflation in the U.K. surprisingly eased in August against expectations it would accelerate, a welcome showing for central bankers just a day ahead of an interest-rate decision.
The U.K. consumer price index fell a touch to 6.7% year-over-year in August from 6.8%, the Office for National Statistics said Wednesday.
CPI was expected by economists to rise, to a 7% rate.
Core CPI also fell more than expected, to 6.2% from 6.9%, against expectations of a 6.8% gain.
The ONS said the largest downward contributions came from food, where inflation slowed to a 13.6% rate from 14.9% in July and a March peak of 19.2%. Restaurant and hotel prices slowed to 8.3% from 9.6%, the lowest rate since May 2022. Recreation and culture goods and services saw inflation weaken to 6% from 6.8%.
The knee-jerk reaction in currency markets sent the pound GBPUSD, -0.20% lower to $1.2360, from $1.2393 on Tuesday. The inflation surprise comes one day ahead of a Bank of England interest-rate decision, in which the central bank was widely seen increasing rates by a quarter point.
Swaps trading on Wednesday morning now implies a 55% chance of a quarter-point rate hike, down from 85%.
It’s also welcome news for the U.K. government, which pledged to halve the rate of inflation from its 10% peak. “Today’s news shows the plan to deal with inflation is working — plain and simple. But it is still too high which is why it is all the more important to stick to our plan to halve it so we can ease the pressure on families and businesses,” said Chancellor of the Exchequer Jeremy Hunt in a statement.