Fall in inflation eases fears of interest rate hike

There could be some relief for battered mortgage holders as the surprise drop in inflation in June means that interest rates may  rise less sharply – by Christian Leeming

In trying to curb soaring price rises, the Bank of England has raised rates 13 times since December 2021, driving up borrowing costs for millions; it is now under less pressure to act after inflation slowed to 7.9%, down from 8.7% in May.

Falling fuel prices contributed to the slowdown in June, while food prices are rising less quickly, according to the Office for National Statistics (ONS) which publishes the figures.

UK inflation has dropped to its lowest level in more than a year, but remains almost four times higher than the Bank’s official 2% target – and far above other developed countries – in the US, inflation is 3%, and in the eurozone it is 5.5%.

“It is a large drop [in the UK] but let’s not forget that last month we saw no change at all in headline inflation so in some ways what we are seeing this morning is catching up with the falls we’ve seen in other similar countries,” ONS chief economist Grant Fitzner told the BBC’s Today Programme.

“It still looks like we may have the highest rate of inflation in the G7 [group of developed nations], so still some way go.”

Prices of food, energy and services have shot up since last year, squeezing households, and in an attempt to tackle the problem the Bank has raised interest rates from near zero to their current level of 5%.