UK inflation eases to 7.9% in June

Sterling falls after the release of figures, while oil prices retreat

By Raed Alkhedr | @raedalkhedr | 19 July 2023

  • UK inflation eases to 7.9% in June, but remains far from the Bank of England's 2% target.

  • Oil prices drop after initial gains as US demand concerns and Russian supply restrictions weigh on the market.

  • China's commitment to supporting economic growth provides hope for oil demand, while consumer purchasing power remains weak.

UK inflation down to 7.9%

In June, inflation slowed significantly in the United Kingdom (finally), rising by only 7.9% on an annual basis, compared to a previous increase of 8.7%. However, prices are still far from the bank's target of 2%. The decline in fuel prices contributed to the larger decline in the monthly change in the annual rate of the consumer price index. Food prices rose in June, but by a lower percentage than the same period last year.

The Bank of England has been struggling with higher inflation numbers despite being one of the first central banks to resort to raising interest rates at the end of 2021, failing to pull down inflation levels close to 2%.

The pound fell by 0.8% against the US dollar as soon as the data was released, settling near levels of 1.29.

Oil prices fail to maintain gains

Global oil prices fell on Wednesday, after opening higher at the beginning of Asian trading, as markets weighed US demand concerns against China's commitment to supporting economic growth, tightening Russian supply, and declining US inventories.

Brent crude futures fell to $79.62 per barrel, while US WTI fell to $75.60 per barrel.

Today's short-lived gains were due to China's top economic planners pledging to support demand and spending in the world's second-largest economy, supporting demand for oil in the coming period.

In the same context, Russia is planning to curtail its oil exports by approximately 2.1 million metric tons during the third quarter, aligning with their decision to implement voluntary export reductions of 500,000 barrels per day in August. Additionally, price support was bolstered by data from the API, which indicated a decline in crude oil inventories, as well as gasoline and distillate products in the previous week.