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UK CommentUK inflation easing markedly in August

  1. CPI inflation down to 1.7% and core CPI inflation down to 1.5 percent in August
  2. Inflation below market expectations, but roughly in line with the BoE forecast
  3. We expect the BoE to sit perfectly still tomorrow
CPI inflation down to 1.7% and core CPI inflation down to 1.5 percent in August
UK CPI inflation decelerated markedly in August to 1.7 percent y-o-y, down from 2.1 percent in July. The market consensus for August was 1.9 percent. Core CPI inflation also slowed considerably to 1.5 percent y-o-y in August, down from 1.9 percent the month before. The market consensus was 1.8 percent. The Bank of England (BoE) had expected CPI inflation of 1.8 percent in July and 1.6 percent in August, and as such the actual outcome is fairly in line with the central bank’s forecast from the August inflation report. Imported cost pressures also fell in August, with the PPI input inflation down to -0.1 percent y-o-y from 0.6 percent in July (revised from 0.9 percent). PPI output inflation eased to 1.6 percent y-o-y in August from 1.9 percent in July (revised from 1.8 percent). According to the ONS, the fall in y-o-y inflation from July to August was broad-based, but the largest downward contributions to the change in the CPI 12-month rate came from a range of recreational and cultural goods and services, clothing and sea fares. The largest, offsetting, upward contribution came from food and non-alcoholic beverages.
We expect the BoE to sit perfectly still tomorrow
The BoE has expected y-o-y CPI inflation in the UK to pick up slightly again in September, but then to ease to an average of 1.6 percent in Q4. So far, the trend seems roughly in line with that forecast. The Monetary Policy Committee of the BoE will meet tomorrow, but we expect inflation to be lower on the agenda than under normal circumstances. Brexit currently overshadows everything else in the UK, and we expect the BoE to sit perfectly still and await more clarity.


 


 


Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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