UK Inflation in Surprise Drop to 18-Month Low

British inflation unexpectedly slowed in August, data showed Wednesday, hitting an 18-month low and sparking hope this week's widely-forecast interest rate hike by the Bank of England (BOE) could be its last for now.

The Consumer Prices Index dropped slightly to 6.7%from 6.8% in July, the Office for National Statistics (ONS) said in a statement on the eve of the BOE's latest monetary policy decision.

That was the lowest since February 2022 and confounded expectations for an acceleration to 7.1% on higher energy prices. Wednesday's news sent the pound sliding almost 0.4% to $1.2347 in morning deals, with the US Federal Reserve set to hold rates later in the day.

It comes one day after data showed eurozone inflation also slowed slightly in August. Despite the drop, British inflation remains the highest in the G7 group of rich nations, after peaking at a 41-year high of 11.1% in October last year.

Elevated inflation has prompted almost 18 months of regular stoppages by public and private-sector workers whose pay is failing to keep pace.

The BOE has so far ramped up its key interest rate 14 times in a row to the current level of 5.25% in a bid to bring down red-hot inflation. The ONS added that food prices rose by less in August than a year earlier. This impact was only partially offset by higher energy costs.

However, economists caution that this week's rebound in oil prices toward $100 per barrel will fuel fresh inflationary pressures.