<h2>Key Highlights</h2> <ul><li>BoE Expected to Raise Rates to 5.25% from 5% on Aug. 3</li><li>Repeat of June's Half-Point Rate Rise Seen as Possible</li><li>UK Inflation of 7.9% Remains the Highest in the G7</li><li>Markets and Economists See Rates Hitting 5.75% This Year</li></ul> The Bank of England appears likely to increase interest rates by a quarter-point to 5.25% on Aug. 3, with the possibility of a repeat of June's surprise half-point hike, as inflation continues to outpace that of other major economies. <h2>A Divergence Among Central Banks</h2> While the U.S. Federal Reserve and the European Central Bank raised interest rates by a quarter of a percentage point this week, the market sentiment suggests that they might be nearing the end of their rate-tightening cycle. On the other hand, expectations regarding BoE rates have been fluctuating significantly since the last rate move on June 22. Investors are grappling with the question of whether the UK is facing a deeper inflation problem or if the rapid price growth will soon follow the trend seen in other economies, with a sharp slowdown. <h2>Evaluating Future Rate Scenarios</h2> Andrew Goodwin, Chief UK Economist at Oxford Economics, highlights that the trajectory of rates after August will hinge on the persistence of second-round effects, referring to the impact of last year's energy cost surge on wages and prices.Expectations for peak BoE rates reached 6.5% on July 11 following data showing record wage growth. However, these expectations subsided after a larger-than-expected decline in consumer price inflation. Presently, investors are divided between a peak rate of 5.75% or 6% later this year or in early 2024. <img src="https://cdn.forexoverflow.io/images/1690524309082-8p8xjtg8mlbxwbn-the-race-to-rasie-rates.png">Source from Reuters <h2>Economic Implications</h2> The surge in rate expectations has led to the highest mortgage costs since 2008, which, in turn, have put pressure on the housing and certain other sectors. Recent survey data revealed that private-sector growth had reached a six-month low this month. <h2>The Fine Balance of Decision Making</h2> In a Reuters poll, most economists predict a rate increase to 5.25% from the current 5% next week, with a potential peak at 5.75%. However, many analysts believe the decision is finely balanced. HSBC economists expect a rate rise to 5.5%, marking the central bank's 14th consecutive hike, in order to send a strong signal on inflation. BoE Governor Andrew Bailey emphasizes the importance of curbing inflation and Deputy Governor Dave Ramsden notes that inflation remains "much too high" despite recent declines. <h2>Inflation Figures and Labor Market Insights</h2> Consumer price inflation in June dropped to 7.9% from 8.7% in July, a significantly larger decline than anticipated, aligning it with the BoE's forecast in early May, when markets predicted rates to peak around 5%. Nonetheless, this inflation rate is nearly four times the BoE's 2% target and twice the rate of the United States. Regarding the job market, wage growth excluding bonuses remained at an annual rate of 7.3% in the three months to May, the joint highest since records began in 2001. However, unemployment unexpectedly rose to a 16-month high of 4%, and employers advertised fewer job vacancies. <h2>Perspectives on Data Interpretation</h2> RBC economists Peter Schaffrik and Cathal Kennedy assert that the interpretation of the data is subjective and could be used to support either 25 basis points or 50 basis points increases. With the end of Silvana Tenreyro's tenure on the BoE's Monetary Policy Committee, fellow external member Swati Dhingra may be the lone advocate arguing that producer price inflation is a better indicator of future consumer price inflation trends than wage growth. Annual producer price inflation fell to 0.1% in June, its lowest since December 2020, following a high of nearly 20% last July, which coincided with the peak of consumer price inflation at 11.1%. <h2>Anticipating Fresh Forecasts</h2> Alongside the rate decision, the BoE will update its growth and inflation forecasts. These are likely to be lower than the May forecasts due to higher market rate expectations, which significantly impact the overall forecast. The International Monetary Fund's forecast for Britain's economy predicts a growth rate of 0.4% this year, making it the second slowest among the Group of Seven advanced economies, only surpassing Germany. <h2>Emphasis on Inflation Persistence</h2> In recent months, the BoE has placed less emphasis on its medium-term forecast. BoE Governor Bailey and Chief Economist Huw Pill have shifted focus towards addressing the risk of inflation persistence, which may not be fully captured in the central forecast. This shift has led some, including HSBC, to assert that if the BoE believed its own forecasts, it would be considering rate cuts rather than rate hikes. In Summary, the Bank of England faces a delicate balancing act as it seeks to address the challenges of surging inflation while considering the nuances of economic data and projections. The upcoming rate decision and inflation forecasts will be crucial in shaping the path the central bank takes to stabilize the UK's economic landscape in the face of uncertainty.

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Bank of England Set to Raise Rates to 5.25% Amid Ongoing Inflationary Pressures. Explore the Factors Influencing the Central Bank's Decision and How it Aligns with Efforts to Tackle Inflationary Challenges in the Economy.

Bank of England's Rate Decision and Inflation

Bank of England Poised to Raise Rates to 5.25% as High Inflation Persists

<h2>Key Points:</h2> ·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2023, the Consumer Prices Index including owner occupiers' housing costs (CPIH) recorded a 7.3% increase over the previous 12 months, a slight decrease from May's 7.9%.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On a monthly basis, CPIH saw a 0.2% rise in June 2023, compared to a 0.7% increase in June 2022.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Consumer Prices Index (CPI) experienced a 7.9% increase over the 12 months leading up to June 2023, down from May's 8.7%.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Monthly, CPI rose by 0.1% in June 2023, as opposed to a 0.8% rise in June 2022.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decline in motor fuel prices had the greatest impact on the decrease in both CPIH and CPI annual rates, while food prices rose in June 2023, albeit at a slower pace than in June 2022, contributing to a reduction in the inflation rates.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no significant factors counteracting the overall rate change.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Core CPIH, which excludes energy, food, alcohol, and tobacco, increased by 6.4% over the 12 months leading up to June 2023, slightly down from May's 6.5%. May's rate was the highest in over three decades. The annual rate of CPIH goods slowed from 9.7% to 8.5%, while the CPIH services annual rate remained unchanged at 6.3% from May.·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Core CPI, excluding energy, food, alcohol, and tobacco, increased by 6.9% over the 12 months leading up to June 2023, a decrease from May's 7.1%, which was the highest rate since March 1992. The CPI goods annual rate slowed from 9.7% to 8.5%, while the CPI services annual rate eased from 7.4% to 7.2%. <h2>Annual CPIH and CPI inflation rates eased between May and June 2023</h2><h2>CPIH, OOH component and CPI annual inflation rates for the last 10 years,</h2> <img src="https://cdn.forexoverflow.io/images/1689788941987-m68y8wyo7e6jj6z-figure-1-annual-cpih-and-cpi-inflation-rates-eased-between-may-and-june-2023-1.png"> Source: Consumer price inflation from the Office for National Statistics<h2> </h2><h2>Consumer price inflation rates</h2> In the 12 months leading up to June 2023, the Consumer Prices Index including owner occupiers' housing costs (CPIH) witnessed a 7.3% increase, showing a slight decline from the previous month's 7.9% and a decrease from the peak of 9.6% reached in October 2022. Based on our indicative modelled consumer price inflation estimates, the October 2022 rate was the highest in over four decades, with the CPIH National Statistic series commencing in January 2006. The rate observed in June 2023 was the lowest since March 2022. The decrease in the annual rate between May and June 2023 can be attributed to a 0.2% monthly price increase, compared to a 0.7% rise during the same period the previous year. Similarly, the Consumer Prices Index (CPI) experienced a 7.9% increase over the 12 months leading up to June 2023, down from May's 8.7%, and a decrease from the peak of 11.1% in October 2022. Our indicative modelled consumer price inflation estimates suggest that the October 2022 peak represented the highest annual inflation rate since 1981, with the CPI National Statistic series beginning in January 1997. The rate observed in June 2023 was the lowest since March 2022. The easing in the CPI annual rate between May and June 2023 was the result of a 0.1% monthly price increase, compared to a 0.8% rise during the same period the previous year. The primary factors influencing the annual inflation rates for both CPIH and CPI align where applicable. However, the owner occupiers' housing costs (OOH) component, which accounts for 16.0% of the CPIH, primarily drives the differences observed between CPIH and CPI inflation rates.

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Uncover the unparalleled decline in UK consumer price inflation as June 2023 sets a new record low since March 2022.

Unprecedented Drop: June 2023 Sees UK's Lowest Inflation Rate Since March 2022"

UK Consumer Price Inflation Hits Record Low in June 2023

Global stocks witnessed a positive surge, and the dollar displayed strength on Wednesday following an unexpected decline in British inflation. This development bolstered the risk-off sentiment across various markets, particularly as market participants anticipate the Federal Reserve's final interest rate hike next week. The dollar experienced a rebound after the news of declining inflation in the United Kingdom, which dropped more than anticipated in June to its slowest pace in over a year, standing at 7.9%. Consequently, the pound faced a sharp decline against other major currencies. Positive Outlook for Global Markets The dollar index saw a rise of 0.398%, while the euro dipped 0.3% to $1.1192. Simultaneously, gold prices remained close to the eight-week peak reached on Tuesday, and oil prices witnessed an increase of over 1%. These movements in the market were driven by the expectation that the Federal Reserve's two-day meeting on July 26 would mark the conclusion of its most aggressive rate-hiking phase in more than four decades. Wall Street Gains Amid Earnings Season Wall Street experienced a rise in stock prices as investors chose to overlook Goldman Sachs' disappointing second-quarter earnings. Instead, they found comfort in the strong profits generated by smaller players in the banking sector. The KBW bank index (.BKX) achieved a 1.8% increase, marking its third consecutive day of gains. Citizens Financial (CFG.N) and M&amp;T Bank (MTB.N) outperformed Wall Street estimates for second-quarter profit, benefiting from the Federal Reserve's rapid rate hikes.According to Brad Conger, Deputy Chief Investment Officer at Hirtle Callaghan &amp; Co in Conshohocken, Pennsylvania, "The healthy state of global growth is evident. It is not declining, which is surprising and bodes well for future earnings. Additionally, interest rates, due to inflation, appear to have reached their peak." Positive Performance Across Global Indices The pan-European STOXX 600 index (.STOXX) rose by 0.37%, while MSCI's global stocks gauge (.MIWD00000PUS) increased by 0.17%.On Wall Street, the Dow Jones Industrial Average (.DJI) observed a rise of 0.39%, the S&amp;P 500 (.SPX) gained 0.27%, and the Nasdaq Composite (.IXIC) added 0.29%. Impact on Bond Yields and Treasury Notes Initially, euro zone bond yields declined following the release of British inflation data, which further indicated a global easing of price pressures. However, Germany's 10-year bond yield later increased by 4.3 basis points, reaching 2.391%. In the United States, the yield on two-year Treasury notes, which typically reflects interest rate expectations, fell by 0.6 basis points, settling at 4.747%. Moreover, the yield on benchmark 10-year notes dropped 1.5 basis points, resting at 3.774%. Oil Prices and Market Closing Brent crude oil hovered above the $80 per barrel mark, while U.S. crude experienced a 0.57% rise to $76.18 per barrel. Brent crude stood at $80.27, exhibiting an increase of 0.8% during the day. As the market closed, global stocks demonstrated a positive trajectory, propelled by the surprising decline in UK inflation and the optimistic outlook for future earnings.

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Global stocks as positive sentiment intensifies due to the slowdown in UK inflation, analyzing the market dynamics and evaluating the potential implications of this optimistic turn of events.

Global Stocks Rise as UK Inflation Slows, Boosting Sentiment

Global Stocks on the Rise: UK Inflation Slows, Boosting Sentiment

On Monday, the UK's FTSE 100 index experienced a slight decline influenced by the performance of mining and energy stocks. The decrease in metal prices resulted from weak economic data from China, the largest consumer of commodities. Simultaneously, the dip in crude oil prices affected the energy sector. Key Points: ·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Weak Chinese economic data affects metal prices·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decline observed in the FTSE 100 and FTSE 250 midcap index·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pressure mounts on Chinese policymakers to stimulate the economy·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Base metal prices decline, impacting industrial metal miners·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Energy stocks experience a decrease in line with lower oil prices·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Focus on UK consumer prices data as inflation eases in the US·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Noteworthy US inflation figures and disinflation pattern·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;UK inflation at a high of 8.7% YoY in May·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Falling residential home prices in the UK due to rising mortgage costs·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decline observed in housing-related stocks·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FTSE 100 drops over 7% since February's record high·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gresham House sees a significant surge in stock price·&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Johnson Matthey receives a "buy" rating from Deutsche BankThe UK's FTSE 100 index experienced a minor setback of 0.1%, accompanied by a similar decline of 0.1% in the more domestically-focused FTSE 250 midcap index. The impact of this decline can be attributed to the release of weak economic data from China, which indicates a frail pace of growth in the second quarter. This decline in momentum after the COVID-19 pandemic has led to increasing pressure on Chinese policymakers to implement additional stimulus measures to stabilize economic activity. The prices of most base metals faced downward pressure, resulting in a 1.9% dip for industrial metal miners. Moreover, heavyweight energy stocks also experienced a decline of 0.4% due to lower oil prices. This convergence of factors has created an atmosphere of caution among investors, with a keen eye on short-term inflation in the UK. Alan Kinnaird, the business development manager at Walker Crips Investment Management, believes that the current inflation figures in the United States are particularly intriguing, especially considering the emergence of a disinflation pattern. In May, UK inflation hit an alarming 8.7% year-on-year. Additionally, an industry survey has indicated a fall in asking prices for residential homes in Britain during July. This decline can be attributed to rising mortgage costs and constraints on buyer affordability, which have prompted sellers to temper their price expectations. Consequently, stocks related to housing, such as real estate and homebuilders, witnessed a decline of nearly 0.5% each. The FTSE 100, which focuses significantly on commodities, has experienced losses of more than 7% since hitting record-highs in February. The fluctuation in oil and metal prices has been driven by concerns surrounding demand in China. The uncertainty associated with these commodities has played a significant role in affecting the overall performance of the FTSE 100 Index.Among individual stocks, Gresham House observed a significant surge of 55.5% in its stock price. This surge followed the announcement by U.S.-based investment firm Searchlight Capital Partners that it intends to acquire the alternative asset manager for £469.8 million ($614.9 million). Furthermore, Johnson Matthey experienced a gain of 0.9% after Deutsche Bank upgraded the chemicals maker's rating from "hold" to "buy." In Summary, the UK's FTSE 100 faced a slight decline driven by weak economic data from China. The decrease in metal prices and lower oil prices impacted mining and energy stocks. Attention is now directed towards UK consumer prices data, while also considering the easing inflation in the United States. UK inflation remains high, and the housing market has experienced a fall in prices due to rising mortgage costs. The FTSE 100, heavily dependent on commodities, has suffered significant losses since its record high in February. Individual stocks such as Gresham House and Johnson Matthey have witnessed notable changes in their stock prices following specific events and market upgrades.

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Dive into the impact of weak Chinese data on metal and energy stocks within the UK's FTSE 100.

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uk inflation

4 articles published related to#uk inflation

Bank of England Poised to Raise Rates to 5.25% as High Infla...

UK Consumer Price Inflation Hits Record Low in June 2023

Global Stocks on the Rise: UK Inflation Slows, Boosting Sent...

UK's FTSE 100 Slips as Weak Chinese Data Impacts Metal and E...

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