20 July 2023
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UK inflations slows to lowest level in over a year

By Jeanne Walters

June UK headline consumer price inflation slowed to its lowest level in over a year, declining to 7.9% y/y from 8.7% in May. The June print was well below expectations for a y/y rise of 8.2%. On a month-on-month basis CPI rose just 0.1% in June, a marked decline from the 0.7% m/m rise in May. Headline CPI was pulled down by smaller increases in food, fuel, restaurant, and hotel prices. There should be a further slowdown in CPI in July with the Ofgem utility price cap being reflected in the CPI calculation. There was further good news in the UK core CPI reading which fell by more than had been expected, to 6.9% y/y from 7.1% in May, driven by both slower core goods and services inflation. The improvement in June inflation has reduced market expectations for the peak in UK rates to below 6%, from a high of 6.5% earlier in the month.

The final release of Eurozone inflation data confirmed that headline CPI was 5.5% y/y in June, unchanged from the initial release. Core CPI was however revised higher, to 5.5% from 5.4% in the initial release, and up from 5.3% y/y in May. The persistent stickiness of core inflation will be of concern to policy makers and may increase calls from inflation hawks on the ECB governing council to continue raising rates after the July meeting.

G20 officials failed to reach an agreement on a framework for restructuring developing nation debt. US officials had hoped to agree an approach based on a deal with Zambia last month, in the hope that such a framework would speed up future negotiations. China has pushed back on the long-held principle that multilateral development banks are exempt from taking haircuts on loans. 

Today’s Economic Data and Events

  • 15:00 TU one week repo rate. Forecast: 18.5%
  • 16:30 US initial jobless claims, Jul 15. Forecast: 240K
  • 18:00 US Conference board leading index, Jun. Forecast -0.6% m/m

Fixed Income

  • UK Gilt yields fell sharply on Wednesday on the back of the better-than-expected UK inflation data. The 2yr yield fell 19bps to 4.848% and the 10yr yield dropped almost 13bps to reach 4.202%.
  • Yields on the 2yr UST were flat by the end of trading on Wednesday, while 10yr yields declined by 4bps to 3.748%.
  • German bund yields rose on the day, with Core CPI for the Eurozone having been revised up fractionally. The 2yr Bund yield rose 2bps to 3.039%, while the 10yr yield increased 6bps to 2.431%.


  • The Dollar gained against a basket of peers, with the index rising 0.34% on Wednesday.
  • The UK inflation print saw Sterling fall 0.74% against dollar to reach 1.294. There was also a further fall in EURUSD, down 0.25%, at the end of trading to reach 1.1201.
  • Moves in commodity currencies saw AUDUSD fall 0.06% to reach 0.6772, and NZDUSD declined 0.2% to 0.6263.


  • US stock markets saw small gains on the day, with earnings call from 2 of the big-tech companies taking place after markets had closed. The S&P 500, the NASDAQ, and the Dow Jones added 0.2%, 0.03%, and 0.3% respectively.
  • Moves were mixed in Europe with the Euro Stoxx 50 and DAX falling 0.2% and 0.1%, respectively, on the day. In the UK, the FTSE 100 rose sharply, closing 1.8% higher, on news that inflation had slowed by more than expected.
  • Locally, the DFM declined 0.85% In Saudi Arabia the Tadawul closed down 0.14%.


  • Oil prices declined marginally yesterday, with Brent futures ending the day 0.2% lower at USD79.5/b, while WTI fell 0.5% to USD75.46/b. A drop in crude stockpiles appears to have broadly offset concerns about weak demand and dollar strength.

Written By

Jeanne Walters Senior Economist

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