U.K. Inflation Slows in July, But Still a Worry

livemint.com:

lending rate to 5.25%, its highest level since February 2008. The central bank next meets in late September and is expected to raise rates again. The BOE will get one more consumer-price index reading, for the month of August, before that meeting.

The pound rose 0.4% to $1.28 while U.K. government bond yields nudged higher, with the 10-year gilt yield reaching 4.61%. Market pricing suggests the BOE will lift rates to 6%, implying three more quarter-point rate increases.

That would mean the bank is likely to continue lifting borrowing costs after other major central banks including the U.S. Federal Reserve and the European Central Bank have stopped. Still, investors have pared back their expectations for how aggressively they expect the BOE to tighten policy.

In early July, investors had anticipated U.K. rates would peak at nearly 6.5%. As central banks wind down their interest-rate campaigns, investors’ focus has begun to shift to the depth of economic slowdowns and how quickly central banks will turn to loosening policy to offset that weaker growth.

“We are inching toward the peak in rates," said Kit Juckes, chief foreign-exchange strategist at Société Générale. “It would be surprising if we didn’t get another hike from the U.K. but…we are at the tail end of it." U.K.

inflation is expected to continue easing but this week’s data suggest higher services prices and wage growth will keep price-pressures elevated. That means the U.K. may have to keep rates at a high level for longer.