UK Inflation rate to 15-month low at 7.9%, Bank of England may hike interest rate

In a big relief to the Rishi Sunak government and the public in general, the rate of inflation in the U.K. has come down to 7.9%, but it is still much higher than 2%, the target set by the Bank of England.

The rate of inflation in June came down to 7.9% compared to 8.7% in the same period last year. Most economists have expected a modest rate of 8.2%. The present rate of inflation is the lowest in the last 15 months.

The Office of National Statistics said that the fall in fuel prices was the main reason behind the lower rate of inflation. The food prices inflation also fell down though the prices were at a record height.


Consequently, the Bank of England is most likely to raise the rate of interest, but as the inflation rate was less than expected, it may go for a modest hike of a quarter to a percentage. The central bank may increase the interest rate from 5% to 5.25%.

The Bank of England has been increasing the interest rate for about the last 18 months for many reasons. First, it raised the rate of interest due to a problem in the supply chain caused by the Corona pandemic. It was followed by another hike due to the Russia-Ukriane war.

The rate of inflation in the U.K. has been higher compared to other G7 nations. Many economists believe that the main reason is quitting the European Union, a move that has slowed down trade. Some economists also think that the Bank of England has been slow in raising the interest rate, which slows the pace of inflation by increasing the cost of materials and services.

FAQs:

Q1:Why has the rate of inflation in the U.K. been higher?
The rate of inflation in the U.K. has been higher compared to other G7 nations. Many economists believe that the main reason is quitting the European Union, a move that has slowed down trade. Some economists also think that the Bank of England has been slow in raising the interest rate, which slows the pace of inflation by increasing the cost of materials and services.

Q2:What will the Bank of England do now?
Bank of England is most likely to raise the rate of interest, but as the inflation rate was less than expected, it may go for a modest hike of a quarter to a percentage. The central bank may increase the interest rate from 5% to 5.25%.