UK homeowners get some respite as inflation falls by more than anticipated to a 15-month low

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Inflation in the U.K. has fallen by more than anticipated to a 15-month low in a development that offered struggling homeowners hope that interest rates will not rise as much as feared over the coming months

LONDON — Inflation in the U.K. has fallen by more than anticipated to a 15-month low, official figures showed Wednesday, a development that offered struggling households hope that interest rates won't rise as much as feared over the coming months.

The Office for National Statistics said that inflation, as measured by the consumer prices index, fell to 7.9% in the year to June from 8.7% the previous month. Most economists had expected a more modest decline to 8.2%.

The statistics agency said fuel prices were the biggest driver behind the drop, while food price inflation also pared back, though remained historically high.

Despite the decline, inflation is still running far higher than the Bank of England's target rate of 2%. As a result, the central bank is expected to raise its main interest rate further at its upcoming meeting in early August.

Although Dave Ramsden, deputy governor at the Bank of England, said inflation is still “much too high," analysts said the bigger-than-expected fall may mean the bank only raises the main interest rate by a quarter of a percentage to 5.25% rather than a half-point.

Financial markets now think the peak will be below 6%, evident in the 1.1% decline in the British pound to $1.29 — a lower potential return puts downward pressure on a currency.

“The positive surprise to headline inflation in June takes significant pressure off the bank to go big again,” said Kallum Pickering, senior economist at Berenberg Bank.

That may provide homeowners who are looking to get a new mortgage