Surprise fall in UK inflation adds to bets on BoE rate hike pause
By William Schomberg and Andy Bruce
LONDON (Reuters) -Britain's high inflation rate unexpectedly fell in August, prompting investors to increase their bets on the Bank of England pausing its historic run of interest rates hikes as soon as Thursday.
Official data published on Wednesday showed the consumer price index dropped to 6.7%, its lowest since February 2022, from July's 6.8%, confounding forecasts by economists polled by Reuters — and the BoE — for an increase.
Sterling sank by almost half a cent to its lowest against the U.S. dollar since May and it also fell against the euro.
Investors put a nearly 50-50 chance on the BoE keeping rates on hold on Thursday after 14 back-to-back increases stretching back to December 2021.
The Office for National Statistics said the fall was driven by a drop in hotel prices and air fares, which are often volatile, and by food prices rising by less than at the same time last year.
That offset a jump in fuel prices and an increase in a tax on alcoholic drinks.
The BoE said last month that it expected inflation in August would rise to 7.1% before falling sharply to around 5% in October which would still be more than double its 2% target.
Investors had been overwhelmingly expecting the BoE to raise interest rates for the 15th time in a row on Thursday, taking Bank Rate to 5.5% from 5.25%.
That looked much less certain in light of the inflation data. At 0700 GMT, investors were putting a roughly 47% chance on the BoE pausing its run of rate hikes on Thursday, up from about 20% before the inflation figures were published.
INFLATION PRESSURES AHEAD
Some economists said the data might not cause the British central bank to change course, however.
«The inflation figures may not sway the Bank
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