Volkswacht Bodensee - UK inflation eases from 40-year high

The Consumer Prices Index slowed to 9.9 percent in August, the Office of National Statistics said.

CPI for July had stood at 10.1 percent, the highest level since 1982, fuelled by surging domestic energy bills and soaring food prices.

The Bank of England, which has delayed its next interest rate decision until after the funeral of Queen Elizabeth II, is still expected to again ramp up borrowing costs by sizeable amounts in the coming months with Britons set to a hike in energy bills.

The UK data follows Tuesday's higher-than-expected US inflation print that has cemented expectations of a prolonged period of rate hikes by the Federal Reserve.

- Strike action -

Rampant inflation sparked a summer of strikes in Britain, spearheaded by tens of thousands of railway workers as pay offers fail to keep pace, although some walkouts have been postponed following the queen's death.

Retail Prices Index inflation -- which includes mortgage interest payments and is used by unions and employers when negotiating wage increases -- remains unchanged at a 1981 peak of 12.3 percent, the ONS said Wednesday.

Although motor fuel prices dropped last month, they remain historically very high, while average food prices rocketed more than 13 percent in August.

Inflation has soared around the globe this year also on supply constraints after economies reopened from pandemic lockdowns, and in the wake of Russia's invasion of Ukraine.

The Bank of England last month ramped up its key interest rate by 0.5 points to 1.75 percent, the biggest hike since 1995, as it seeks to dampen red-hot inflation.

- Energy price freeze -

British Prime Minister Liz Truss last week announced a two-year freeze on domestic energy prices in an multi-billion-pound attempt to bring down the soaring cost of living.

However, household electricity and gas prices will still jump substantially next month ahead of the peak-demand winter.

"While energy prices have been capped, people will still be paying more for their gas and electricity come October and, as the nights draw in, they'll also be using more power," said AJ Bell analyst Danni Hewson.

The BoE has forecast an inflation-induced UK recession starting this year, and has predicted a CPI peak of 13 percent.

The August inflation rate is almost five times the BoE's government-set target of 2.0 percent.

O.Krause--BTB