Inflation unexpectedly fell last month as the increase in food prices slowed and a drop in services activity caused the Consumer Prices Index to drop slightly to 6.7%. Core inflation (excluding volatile fuel and food prices) also slowed as it fell to the lowest rate since March. Lower inflation allowed the Bank of England to keep interest rates on hold and mortgage borrowing costs are now expected to continue falling.
Improving inflation was generally welcomed by investors and policymakers, but there are signs inflation may remain high for some time. The recent decline is partly due to the slowdown in food inflation but, at 13%, this is still very high. Commodities, including crude oil, raw materials and some foods have also been rising in recent weeks. The OECD said central banks will need to keep rates elevated to deal with sticky inflation and it expects the UK’s core inflation rate to remain higher than other developed countries.
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