The United Kingdom witnessed a decline in inflation, with the rate dropping to 6.7 per cent in August, CNBC reported.

The unexpected dip, has raised speculation about a potential pause in interest rate hikes by the Bank of England. On a monthly basis, the consumer price index (CPI) increased by a modest 0.3 per cent.

Economists had anticipated the annual CPI figure to reach 7 per cent, with a month-on-month rise of 0.7 per cent. However, the actual figures painted a different picture, with July recording a 6.8 per cent annual increase and a 0.4 per cent month-on-month decrease.

The Office for National Statistics attributed this decline to various factors. “The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, where prices rose by less in August 2023 than a year ago, and accommodation services, where prices can be volatile and fell in August 2023,” BNBC quoted the agency as saying. Conversely, the rise in motor fuel prices had the most significant impact on pushing the annual rates upward.

Core CPI, which excludes the influence of volatile factors like food, energy, alcohol, and tobacco prices, stood at 6.2 per cent for the 12 months ending in August, down from 6.9 per cent in July. While the goods rate experienced a slight increase from 6.1 per cent to 6.3 per cent, the services rate saw a notable slowdown from 7.4 per cent to 6.8 per cent.

Raoul Ruparel, director of Boston Consulting Group's Centre for Growth, highlighted the significance of this unexpected core inflation drop. He noted that this development, coupled with signs of retail price easing, suggests potential improvements in real wages for consumers. However, Ruparel also emphasised the challenges faced by the Bank of England as the economy appears to be slowing, and the full impact of rate hikes has yet to be felt.

The Bank of England is scheduled to announce its next monetary policy decision on Thursday, with the aim of reining in inflation and aligning it with the bank’s 2 per cent target. Market expectations had been leaning toward another 25-basis-point hike in interest rates, potentially bringing the main bank rate to 5.5 per cent, its highest level since December 2007.

Following the surprising inflation data, market sentiment shifted. The probability of a pause from the Bank of England surged from 20 per cent to nearly 50 per cent.

Caroline Simmons, U.K. chief investment officer at UBS, expressed her belief that the central bank is still likely to proceed with a rate hike on Thursday. CNBC quoted her, "We do believe that's going to be their last hike, however, because we do have these downward forces on inflation."

According to her, while concerns regarding rising oil prices initially fuelled uncertainty about the inflation trend, the overall trajectory seems to be heading downward, potentially impacting the bank's decision-making process.

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The United Kingdom witnessed a decline in inflation, with the rate dropping to 6.7 per cent in August, CNBC reported. The unexpected dip, has raised speculation about a potential pause in interest rate hikes by the Bank of England.

The United Kingdom witnessed a decline in inflation, with the rate dropping to 6.7 per cent in August, CNBC reported. The unexpected dip, has raised speculation about a potential pause in interest rate hikes by the Bank of England. On a monthly basis, the consumer price index (CPI) increased by a modest 0.3 per cent. Economists had anticipated the annual CPI figure to reach 7 per cent, with a month-on-month rise of 0.7 per cent. However, the actual figures painted a different picture, with July recording a 6.8 per cent annual increase and a 0.4 per cent month-on-month decrease. The Office for National Statistics attributed this decline to various factors. “The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, where prices rose by less in August 2023 than a year ago, and accommodation services, where prices can be volatile and fell in August 2023,” BNBC quoted the agency as saying. Conversely, the rise in motor fuel prices had the most significant impact on pushing the annual rates upward. Core CPI, which excludes the influence of volatile factors like food, energy, alcohol, and tobacco prices, stood at 6.2 per cent for the 12 months ending in August, down from 6.9 per cent in July. While the goods rate experienced a slight increase from 6.1 per cent to 6.3 per cent, the services rate saw a notable slowdown from 7.4 per cent to 6.8 per cent. Raoul Ruparel, director of Boston Consulting Group's Centre for Growth, highlighted the significance of this unexpected core inflation drop. He noted that this development, coupled with signs of retail price easing, suggests potential improvements in real wages for consumers. However, Ruparel also emphasised the challenges faced by the Bank of England as the economy appears to be slowing, and the full impact of rate hikes has yet to be felt. The Bank of England is scheduled to announce its next monetary policy decision on Thursday, with the aim of reining in inflation and aligning it with the bank’s 2 per cent target. Market expectations had been leaning toward another 25-basis-point hike in interest rates, potentially bringing the main bank rate to 5.5 per cent, its highest level since December 2007. Following the surprising inflation data, market sentiment shifted. The probability of a pause from the Bank of England surged from 20 per cent to nearly 50 per cent. Caroline Simmons, U.K. chief investment officer at UBS, expressed her belief that the central bank is still likely to proceed with a rate hike on Thursday. CNBC quoted her, "We do believe that's going to be their last hike, however, because we do have these downward forces on inflation." According to her, while concerns regarding rising oil prices initially fuelled uncertainty about the inflation trend, the overall trajectory seems to be heading downward, potentially impacting the bank's decision-making process. WATCH WION LIVE HERE

UK inflation drops to 6.7 per cent, potentially impacting Bank of England's rate decision

Sri Lanka's main financial regulator Tuesday ordered local and foreign banks to slash lending rates in an unprecedented move as the economy struggled to recover from the Easter attacks.

The Central Bank of Sri Lanka said it ordered all commercial banks to reduce lending rates by a minimum of 200 basis points within three weeks.

It comes weeks after the government complained that lending rates had not kept pace with sharply lower deposit rates that fell by over 250 basis points since the April attacks, when hundreds were killed in suicide bombings.

Banking experts said it was the first time since the inception of the central bank in 1950 that it had resorted to imposing a mandatory ceiling on lending rates.

Average lending rates are currently around 13 to 15 per cent, while the country's inflation had slowed to 2.2 per cent in July.

Last month the Central Bank cut its main lending rate for the second time in three months, hoping to help the struggling economy.

The Central Bank said the rate at which it lent to commercial banks was reduced by 50 basis points to 8.0 percent and added that the 50-basis-point cut in May had not translated into cheaper credit for consumers.

Sri Lanka's economic growth slowed to 3.2 per cent last year, but it had been expected to pick up in 2019 -- until the devastating attacks by a homegrown jihadist group.

The finance ministry expects growth to be around 3.00 to 3.5 per cent this year as the tourism sector made a faster than expected recovery after the Easter bombings.

Revenues from tourism -- one of the country's biggest incomes -- were expected by the finance ministry to plunge $1.5 billion this year because of cancellations by foreign tourists after the bombings, but the industry anticipates a much smaller drop.

The International Monetary Fund released a delayed loan installment to Sri Lanka following the bombings, helping government efforts to stabilise the economy. 
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Sri Lanka's main financial regulator Tuesday ordered local and foreign banks to slash lending rates in an unprecedented move as the economy struggled to recover from the Easter attacks.

Sri Lanka's main financial regulator Tuesday ordered local and foreign banks to slash lending rates in an unprecedented move as the economy struggled to recover from the Easter attacks. The Central Bank of Sri Lanka said it ordered all commercial banks to reduce lending rates by a minimum of 200 basis points within three weeks. It comes weeks after the government complained that lending rates had not kept pace with sharply lower deposit rates that fell by over 250 basis points since the April attacks, when hundreds were killed in suicide bombings. Banking experts said it was the first time since the inception of the central bank in 1950 that it had resorted to imposing a mandatory ceiling on lending rates. Average lending rates are currently around 13 to 15 per cent, while the country's inflation had slowed to 2.2 per cent in July. Last month the Central Bank cut its main lending rate for the second time in three months, hoping to help the struggling economy. The Central Bank said the rate at which it lent to commercial banks was reduced by 50 basis points to 8.0 percent and added that the 50-basis-point cut in May had not translated into cheaper credit for consumers. Sri Lanka's economic growth slowed to 3.2 per cent last year, but it had been expected to pick up in 2019 -- until the devastating attacks by a homegrown jihadist group. The finance ministry expects growth to be around 3.00 to 3.5 per cent this year as the tourism sector made a faster than expected recovery after the Easter bombings. Revenues from tourism -- one of the country's biggest incomes -- were expected by the finance ministry to plunge $1.5 billion this year because of cancellations by foreign tourists after the bombings, but the industry anticipates a much smaller drop. The International Monetary Fund released a delayed loan installment to Sri Lanka following the bombings, helping government efforts to stabilise the economy.

Sri Lanka forces lending rate cuts on all banks

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