UK Inflation falls below target
14 August 2007
UK CPI (1.9%y/y) fell below the Bank of England's 2.0% target rate in July for the first time since March 2006. The market has been expecting a figure around 2.3%y/y compared to 2.4%y/y in June. The sharp drop in prices came from the food sector as supermarkets engaged in a summer price war.
The figures are likely to fuel speculation that UK interest rates have peaked at 5.75%, however only last week, the Bank of England indicated in their quarterly inflation report that another hike to 6.00% remains necessary to curb inflationary pressures in the medium term.
Looking forward, the Office of National Statistics indicated that torrential rain and flooding across Britain this summer will threaten supermarket availability levels in the run-up to Christmas which could push prices back higher again.
The news had a negative impact on Sterling resulting in a low of 1.9983 against the US Dollar and 1.4715 against the Euro.