The UK’s official inflation figures have been released today, these show a fall in inflation from 7.9% in June to 6.8% today and significantly lower than the peak of 11.1% in October. This means that that prices for your everyday items are still increasing but at a slower rate than they were previously, they are still however increasing at a much higher rate than the targeted figure of 2%.
Whilst this is good news, we have dug deeper into the details from the announcement today. The fall in inflation is largely due to the reduction in the cost of gas and electric compared to a year ago. When removing this from the calculations, inflation figures have stayed at a similar level to last month when they were released.
We have also seen that the UK’s wage growth figures have also been released today for the period of April to June. For the first time in a while, wage growth in the UK is now above the rate of inflation. This has been recorded today at 7.8% by the Office for National Statistics.
Our View
The fact that the UK’s inflation figures have fallen significantly is very positive. it indicated the costs of things in the UK aren’t increasing as quickly as they were previously.
However, given that the inflation figures without gas and electric remains at a similar level plus the recent figures showing high growth in wages compared to inflation will give the Bank of England something to think about. The reason that they could be concerned by today’s announcement is because increasing wages at higher levels than inflation could cause inflation to start rising again which they do not want.
We have read today that financial markets are starting to factor in another Base Rate increase on the 21st September, this has resulted in the rate that lenders trade money between themselves at have increased today compared to what they were yesterday. This could mean that lenders, after starting to reduce the cost of their fixed rate mortgages, have to start increasing them again.