UK Inflation Shrinks to 6.7% as Market Braces for 25bps Rate Hike

Inflation in the United Kingdom came in at 6.7% in August, showing a slight drop from the previous month and also below expectations.

Prices in the UK came down from 6.8% in July and surprised the market that forecast for a 7% increase, according to a Reuters poll.

On a monthly basis, the headline inflation rose 0.3%, lower than the 0.7% expected by economists and 0.4% decline in July.

Core inflation, which excludes volatile food and energy prices, came in at 6.2% YoY, a drop from 6.9% a month prior and 6.8% estimated.

The Bank of England will announce its next monetary policy decision this Thursday as the market is pricing in another 25 basis points hike, which would take the rate to 5.5%, the highest level since December 2007. However, the latest report showed that the market is now expecting a 47% chance that BOE will maintain rates at 5.25%, which raised from a 20% probability to pause prior to the inflation report.