UK: INFLATION LOSES TRACTION IN JUNE – UOB

Economist at UOB Group Lee Sue Ann reviews the latest release of the UK inflation figures.

Key Takeaways

Inflation in the UK fell by more than expected in Jun and was at its slowest in more than a year. While wages rose at the joint fastest pace on record, there are also signs that the inflationary heat in the labour market is cooling. 

Policymakers in the UK are walking a tightrope as they attempt to tighten monetary policy sufficiently to quell inflationary pressures without triggering a full-scale mortgage crisis and recession. 

We believe the outsized move in Jun by the Bank of England (BOE) will be a one off. The recent slew of economic data should ease some of the pressure to keep on raising interest rates sharply. We keep to our view that the BOE will likely hike by 25bps at each of its next two meetings (3 Aug and 21 Sep), culminating with a terminal rate of 5.50%.