Falling Petrol and Diesel Prices Drove Inflation Down to 7.9 Percent: ONS

By Lily Zhou
Lily Zhou
Lily Zhou
Lily Zhou is an Irish-based reporter focusing on UK news. Lily first joined the Chinese edition of The Epoch Times before turning her focus on the UK in 2020.
July 19, 2023Updated: July 19, 2023

The UK’s annual inflation rate in June has slowed down to 7.9 percent, largely driven by falling motor fuel prices, according to figures published on Wednesday by the Office for National Statistics (ONS).

The drop, bigger than some forecasts, left economists wondering whether the Bank of England (BoE) would go easier on its next interest rate hike, but the optimism is also dampened by the unexpectedly high rate of pay growth published last week.

In June, the UK’s annual Consumer Prices Index (CPI) rose by 7.9 percent, down from 8.7 percent in May.

It’s in line with the BoE’s forecast in May, but lower than the 8.2 percent forecast by most economists polled by Reuters.

On a monthly basis, CPI rose by 0.1 percent from May.

The fall of motor fuel prices is the biggest contributor to the slowdown of both annual and monthly inflation, the ONS said.

The CPI including owner occupiers’ housing costs (CPIH) rose by 7.3 percent in the 12 months to June 2023, down from 7.9 percent in May.

Core CPI rate, which excludes commodities with volatile prices such as food, energy, alcohol, and tobacco, increased by 6.9 percent in the 12 months to June, down from 7.1 percent in May.

The annual rate of food inflation also eased in June, at 17.4 percent, down from 18.4 percent in May.

Retailers’ Efforts

However, the retail industry said supply chains remained volatile.

Helen Dickinson, chief executive of the British Retail Consortium, said the efforts by retailers to curb price rises and reduce inflation appear to be paying off as inflation rates for food fell for the third month in a row.”

But she also warned that “Russia’s decision to pull out of the Black Sea grain initiative could increase costs for some staples in the future.”

The BoE last month raised interest rates by a surprising 0.5 percent after inflation in May was higher than expected.

england-bank
The Bank of England can be seen as people cycle through the City of London financial district, in London, on June 11, 2021. (Henry Nicholls/Reuters)

Economist James Smith at ING bank said it will be a “close call” whether the central bank votes for a 0.25 or 0.5 percentage point interest rate rise in August.

“Is this enough to convince the Bank of England to opt for a 25 basis point rate hike in August?” he said. “We think it probably will—but it’s going to be a close call.”

“The bank will also be looking at the recent wage data, which was stronger than expected but came alongside figures showing a renewed cooling in the jobs market and improvements in worker supply,” he said.

ONS figures published last week showed that average basic earnings in the three months to May grew by 7.3 percent from the same period in 2022, the fastest growth on record.

The tightness of the labour market has shown signs of easing, however, with the unemployment rate edging up by 0.2 percent.

Hunt: ‘Sticking to the Plan’

Commenting on June inflation figures, Chancellor Jeremy Hunt said: “Inflation is falling and stands at its lowest level since last March; but we aren’t complacent and know that high prices are still a huge worry for families and businesses.

“The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”

Asked if the BoE should ease up on interest rate hikes, Mr. Hunt said while we are “seeing the first fruits” of the BoE and the Treasury’s “very difficult decisions,” there’s “a long way to go.”

“Although fuel prices have come down, they’re still significantly higher than they were a few years ago,” he said.

“And so we need to stick to the plan to halve inflation, to bring it back even beyond that to the Bank of England’s target rate of 2 percent.”

Prime Minister Rishi Sunak’s spokesman said it’s “encouraging” to see the slowdown of inflation, but he wouldn’t be drawn on what actions the operationally independent BoE should take.

“We are not complacent, we know that high prices are still hurting some families and businesses, but we are taking the responsible decisions on spending so we limit the pressure on the bank to raise interest rates further,” he said.

Labour’s shadow chancellor Rachel Reeves said that inflation “has been persistently high and remains higher than our international peers,” branding it a “hallmark of Tory economic failure.”

“Today’s numbers confirm what families across the country already know—that prices are still going up at staggering rates and that they’re bearing the brunt of those costs,” Ms. Reeves said.

“There may be global shocks—but Britain is so exposed to those because of Tory economic failure that has led to a severe lack of security in our economy.

“Only Labour has the plans Britain needs to put our economy on a more secure path—so that families are better off and so we can grab hold of the opportunities of the future.”

PA Media contributed to this report.