Investors have slashed bets on another interest rate rise on today, predicting the Bank of England will hold borrowing costs flat following a surprise fall in inflation yesterday.
Inflation dropped to 6.7% in August, defying expectations of an increase and leaving the Bank of England’s interest rate decision on a knife edge.
Economists had anticipated an acceleration in the rate of price rises from July’s 6.8% to 7.1% as petrol and diesel prices jumped. But a slowdown in food price inflation and a fall in the price of hotel rooms meant overall consumer prices were more restrained.
Financial markets now see a roughly 55% chance of the Bank of England holding rates steady at 5.25% at its policy meeting at midday today, according to the Telegraph.
Any rise would mean higher interest rates on some mortgages and loans, but also higher savings rates.
The Bank has been hiking rates since December 2021 in an effort to tackle inflation in the UK, which is much higher than usual and putting households under financial pressure.
By making it more expensive for people to borrow money, it hopes households will cut back and buy fewer things.
It also might mean that firms will raise prices less quickly.
But it's a tricky balancing act as raising rates too aggressively could cause people to cut back on their household spending which could see firms struggle for survival and economic growth slow.
The US central bank, the Federal Reserve held rates steady on Wednesday at 5.25%-5.5% as it too figures out whether enough has been done to tackle inflation.
Investment bank Goldman Sachs said it now expected interest rates in the UK to remain unchanged on Thursday after inflation was shown to have fallen.
FTSE 100
The UK's top share index, the FTSE 100, was down 40-points at 7,691 shortly after opening this morning, following yesterday's 71-point rise.
Brent crude futures were down 1.52% at $92.91 a barrel.
Companies reporting today
- C&C Group (Q2 trading statement)
- CVS Group (Full year results)
- Halma (Trading statement)
- JD Sports Fashion (Half year results)
- Next (Half year results)
- Octopus Renewables Infrastructure Trust (Half year results)
- SSP Group (Q4 trading statement)