Away from inflation, the UK’s competition regulator has provisionally cleared semiconductor designer Broadcom’s $69bn deal to buy cloud computing firm VMware.

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The Competition and Markets Authority (CMA) has concluded that the deal would not weaken competition in the supply of critical computer server products.

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In March, the CMA raised concerns that the deal could make servers more expensive, prompting an in-depth investigation.

","elementId":"9abd5fc1-1bba-4c74-9a19-5b4576390f5f"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

But it has now concluded that it would not make financial sense for Broadcom to make its rivals products work less well (or not at all) with VMware’s server virtualisation.

","elementId":"ef34fd98-0664-43d8-841b-439ecffa2512"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

It also found that there isn’t a danger that Broadcom would see commercially sensitive information from its rivals, which they share with VMware.

","elementId":"e572ebe1-a571-4cd6-b7d3-53e2bcd526b3"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Richard Feasey, chair of the independent inquiry panel carrying out the investigation, said:

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\n

Computer servers – often using the products of Broadcom and VMware – play a critical role in enabling us to work in the office or at home or to access TV shows or use banking services.

\n

That’s why it’s important we investigate this deal to ensure that UK businesses continue to benefit from competition and innovation in the supply of server components. After carefully considering a broad range of evidence, we have provisionally found that this deal would not harm competition.

\n

","elementId":"2af05b49-d75b-4d56-aeb7-addcc19a443c"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1689761983000,"blockCreatedOnDisplay":"06.19 EDT","blockLastUpdated":1689762656000,"blockLastUpdatedDisplay":"06.30 EDT","blockFirstPublished":1689762656000,"blockFirstPublishedDisplay":"06.30 EDT","blockFirstPublishedDisplayNoTimezone":"06.30","title":"CMA clears Broadcom-VMWare deal","contributors":[],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b7a63f8f08d284f1f0c94e","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

We’ve just had confirmation that inflation was lower in Europe than in the UK last month.

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Eurozone inflation was 5.5% in the year to June, statistics body Eurostat reports, matching its initial estimate, down from 6.1% in May.

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Across the wider European Union, the inflation rate was 6.4% in June.

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The lowest annual rates were registered in Luxembourg (1.0%), Belgium and Spain (both 1.6%).

","elementId":"842a1cb5-4da0-43e2-b3b1-05c841b718e4"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

The highest annual rates were recorded in Hungary (19.9%), Slovakia (11.3%) and Czechia (11.2%).

","elementId":"746f7272-14f0-4bd6-a798-b13f6ac02da4"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

As in the UK, food inflation slowed in Europe last month while energy prices fell year-on-year.

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Euro area annual #inflation at 5.5% in June 2023, down from 6.1% in May https://t.co/64UeInSVjV pic.twitter.com/dy1UQWRo7W

— EU_Eurostat (@EU_Eurostat) July 19, 2023

","url":"https://twitter.com/EU_Eurostat/status/1681589700027621376","id":"1681589700027621376","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"a1e3f19a-f45b-4de5-81e6-7af29cb965c5"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

But, core inflation in the eurozone rose.

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Underlying prices, stripping out energy, food, alcohol & tobacco, rose by 5.5% per year last month, up from 5.3% in May, and higher than the initial estimate of 5.4%.

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In the UK, we learned earlier, core inflation fell to 6.9% from 7.1%.

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“Boom! We’ve just seen the strongest daily movement in UK mid cap stocks since February, with the FTSE 250 index initially jumping 3% on news of inflation cooling more than expected in June,” reports says Danni Hewson, head of financial analysis at AJ Bell.

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Hewson explains:

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\n

The FTSE 100 advanced 1.3% to 7,548 – a positive move but less pronounced than the FTSE 250 because the blue-chip index has less exposure to the UK economy.

\n

“The inflation reading has dampened the outlook for interest rate hikes in the UK, much to the excitement of investors. Two-year gilts fell from 5.079% to 4.842%, sterling fell 0.7% to $1.2937 in the space of 20 minutes and interest rate-sensitive stocks soared on the news.

\n

“Housebuilders, including Crest Nicholson, saw gains of up to 7%, while commercial real estate companies such as British Land were close behind, and UK banks advanced by 2% to 3%.

\n

“Investors are taking the view that if inflation is on a sustained downward path, then the Bank of England might be less eager to keep pushing up interest rates.

\n

The market is desperate for that pivot moment where central banks call the end to the current rate rise cycle.

\n

","elementId":"62e16455-967d-41c6-a0c9-8c8a446de6e9"},{"_type":"model.dotcomrendering.pageElements.TweetBlockElement","html":"

Inflation rate falls to 7.9% in June -- still slightly slower than expected. But critically, core inflation may have peaked last month, falling to 6.9% in June, down from 7.1% in May. pic.twitter.com/EEGxUrJYrE

— Kate Andrews (@KateAndrs) July 19, 2023

\n","url":"https://twitter.com/KateAndrs/status/1681549005556178944","id":"1681549005556178944","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"c5075c7e-9d6f-4d91-b5f9-50db9a71935e"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1689757120000,"blockCreatedOnDisplay":"04.58 EDT","blockLastUpdated":1689760968000,"blockLastUpdatedDisplay":"06.02 EDT","blockFirstPublished":1689757190000,"blockFirstPublishedDisplay":"04.59 EDT","blockFirstPublishedDisplayNoTimezone":"04.59","title":"FTSE 250 on track for best day since February","contributors":[],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b79fed8f08d284f1f0c901","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

The rents paid by UK tenants have increased at the fastest rate since at least seven years, the Office for National Statistics reports.

","elementId":"a5aef6b1-0870-4414-9e57-45e1bb1132e5"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

The ONS says that the private rental prices paid by tenants in the UK increased by 5.1% in the 12 months to June, the largest annual percentage change since its data began in January 2016.

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In England, private rental prices increased by 5.1% in the 12 months to June, or by 4.9% if you exclude London (where they rose 5.3%).

","elementId":"5a27940f-7ca2-4f6e-8219-29f4460bc10e"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Rent rose by 5.8% per year in Wales, up from 5.0% in May 2023, and the highest annual percentage change at least 2010 (when the Wales data series began).

","elementId":"44a702c7-49fc-4ec0-ade6-e5b2144a706d"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Private rental prices in Scotland increased by 5.5% in the 12 months to June 2023.

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The ONS has also reported that average UK house price inflation has slowed, with prices rising by 1.9% in the 12 months to May, down from a 3.2% rise in April.

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But prices were £7,000 below the recent peak in September 2022.

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Commenting on today’s house price data for May and rents data for June, Aimee North, Head of Housing Market Indices at the ONS, said: (1/2) 💬 pic.twitter.com/tskloOw6sd

— Office for National Statistics (ONS) (@ONS) July 19, 2023

","url":"https://twitter.com/ONS/status/1681583846246998016","id":"1681583846246998016","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"8fe2c6f9-0b53-4cd9-9620-390a99091af4"},{"_type":"model.dotcomrendering.pageElements.TweetBlockElement","html":"

Aimee North continued: (2/2) 💬 pic.twitter.com/G33bdO5Oe4

— Office for National Statistics (ONS) (@ONS) July 19, 2023

","url":"https://twitter.com/ONS/status/1681584000840638465","id":"1681584000840638465","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"9262e19f-c8d7-4e09-a62e-f2d1726db1eb"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1689755629000,"blockCreatedOnDisplay":"04.33 EDT","blockLastUpdated":1689756917000,"blockLastUpdatedDisplay":"04.55 EDT","blockFirstPublished":1689756176000,"blockFirstPublishedDisplay":"04.42 EDT","blockFirstPublishedDisplayNoTimezone":"04.42","title":"Rents soar at fastest rate since at least 2016","contributors":[],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b79b3b8f08d284f1f0c8c7","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

UK inflation fell further than expected in June to 7.9% amid a sharp fall in petrol prices, easing forecasts for how aggressively the Bank of England will need to raise interest rates over the coming year.

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The Office for National Statistics said the annual inflation rate as measured by the consumer prices index resumed a downward path after unexpectedly sticking at 8.7% in May.

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The drop exceeded City forecasts for a decline to 8.2%.

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Financial markets responded to the figures by betting that the Bank of England would no longer drive interest rates above 6% early next year.

","elementId":"d4e12d03-3c11-49b7-8cd1-e6242652da6b"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Raising further hopes of relief for mortgage holders, markets also predicted that the central bank would introduce a more modest quarter-point rise in borrowing costs at its next policymaking meeting in August instead of a tougher half-point increase from the current level of 5%.

","elementId":"e9765302-b954-4965-be2a-2b3c4c886b42"},{"_type":"model.dotcomrendering.pageElements.RichLinkBlockElement","url":"https://www.theguardian.com/business/2023/jul/19/uk-inflation-interest-rates-bank-of-england","text":"UK interest rates forecast to rise less sharply after inflation falls to 7.9%","prefix":"Related: ","role":"thumbnail","elementId":"ef5cd6a4-d3cb-40c6-81c6-be5db35b07c8"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1689754427000,"blockCreatedOnDisplay":"04.13 EDT","blockLastUpdated":1689755547000,"blockLastUpdatedDisplay":"04.32 EDT","blockFirstPublished":1689755547000,"blockFirstPublishedDisplay":"04.32 EDT","blockFirstPublishedDisplayNoTimezone":"04.32","title":"Full story: UK interest rates forecast to rise less sharply after inflation falls to 7.9%","contributors":[{"name":"Richard Partington","imageUrl":"https://i.guim.co.uk/img/uploads/2017/12/27/Richard-Partington.jpg?width=300&quality=85&auto=format&fit=max&s=7a0cd4e01f7289ba75909509b7b8da7c","largeImageUrl":"https://i.guim.co.uk/img/uploads/2017/12/27/Richard_Partington,_R.png?width=300&quality=85&auto=format&fit=max&s=bb38e72cdfabfe7563b4036c49593334"}],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b79ec88f08d284f1f0c8f7","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Marcus Brookes, chief investment officer at Quilter Investors, has described today’s inflation figures as a “glimmer of light.”

","elementId":"66328774-3e1c-4a66-aff8-88840a0df624"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

But, Brookes also warned the UK is still a “drastic outlier” among developed countries when it comes to inflation.

","elementId":"3b0099d7-510c-4016-95b1-3e183034c544"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

He writes:

","elementId":"13edbb13-a70c-4ba3-b840-e2e320a349b6"},{"_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"

\n

While the rate of the price rises has dropped to 7.9%, this is still far above where the Bank of England wants it to be before it can even consider a pause in the rate hikes we have become accustomed to.

\n

“Frustratingly, while also beating expectations core inflation is remaining persistently stubborn and refusing to budge significantly. It may be that finally the well-known lags in the effect of interest rate rises are beginning to have an effect, but it still remains very sticky so way too early to begin celebrating.

\n

“Demand has withstood both inflation and the rise in rates, but cracks are appearing, and as more mortgage holders get exposed to the current rates, the economy is likely to be hit as a result.

\n

“This is unfortunately the path that is likely going to have to be taken in order to get inflation back down to target. The Bank of England has raised rates considerably, and shows no sign of slowing down and thus we are probably on a path to recession in 2024.”

\n

","elementId":"c1c7ae38-ee64-4d0e-987b-f666848f26c0"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1689755336000,"blockCreatedOnDisplay":"04.28 EDT","blockLastUpdated":1689755490000,"blockLastUpdatedDisplay":"04.31 EDT","blockFirstPublished":1689755491000,"blockFirstPublishedDisplay":"04.31 EDT","blockFirstPublishedDisplayNoTimezone":"04.31","title":"Quilter Investors: UK still a 'drastic outlier' on inflation","contributors":[],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b798a88f0835a0b4953581","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

There’s drama in the bond market too this morning, which could benefit those looking to remortgage in the months ahead.

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The price of UK government bonds is surging, driving down the yield (or interest rate) on these gilts.

","elementId":"be3b1ec7-c6e7-4109-ad25-1c914971e427"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

The yield on a two-year UK bond has dropped to 4.8%, down from over 5% last night – and a 15-year peak of 5.5% earlier this month.

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That’s significant, as two-year gilts are used to price the cost of fixed-rate mortgages.

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Big fall in 2 year Gilt yields in wake over lower than expected June UK inflation figures - down 25 basis points to 4.84%... pic.twitter.com/cCLcOPwBhL

— Ben Chu (@BenChu_) July 19, 2023

\n","url":"https://twitter.com/BenChu_/status/1681565457562705921","id":"1681565457562705921","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"b1be9c78-a077-4099-ab23-2458ce000d76"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Neil Wilson of Markets.com says:

","elementId":"0f314165-ec08-4836-8c2e-a76b64ad679d"},{"_type":"model.dotcomrendering.pageElements.BlockquoteBlockElement","html":"

\n

Annual CPI inflation declined to 7.9% in June from 8.7% in May, in what’s probably a huge relief for Threadneedle St [the Bank of England].

\n

Core inflation was also down.

\n

It doesn’t really matter too much what the finer details are and what the actual number is as far as markets are concerned, it’s all about the direction; and it’s going the right way.

\n

Gilt yields fell sharply with the 2yr back to a one-month low at 4.833%, dropping ~25bps on the session for its biggest drop since March, having traded near 5.50% two weeks ago. It cements the market’s disinflation narrative.

\n

","elementId":"966177f9-3182-4b68-8573-67551a804828"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Longer-dated UK government bonds are also rallying, reflecting renewed hopes that inflation will fall faster than feared, meaning interest rates will peak below 6%.

","elementId":"e4bf1f59-f901-40aa-bfe7-f394d5184297"},{"_type":"model.dotcomrendering.pageElements.TweetBlockElement","html":"

....10 year yields down 14 basis points... pic.twitter.com/gFUI9c3pxr

— Ben Chu (@BenChu_) July 19, 2023

\n","url":"https://twitter.com/BenChu_/status/1681565817937309696","id":"1681565817937309696","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"76267f56-117b-4f1f-8663-d3dcaae2f750"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

However, Moneyfacts has just reported that average mortage rates have risen this morning, following two days where they remained unchanged.

","elementId":"e6dcd693-8dab-4424-b961-e034c3ff4b68"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

They say:

","elementId":"ec1b92ad-1c2b-4b4e-922c-ea825433f7af"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

\n

• The average 2-year fixed residential mortgage rate today is 6.81%. This is up from an average rate of 6.78% on the previous working day.

\n

• The average 5-year fixed residential mortgage rate today is 6.33%. This is up from an average rate of 6.30% on the previous working day.

\n

","elementId":"e3c52347-0b13-48bb-b4f9-9e6248a5fb1b"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Clearly it’s too early for mortgage lenders to have reacted to this morning’s inflation report, but borrowers will be hoping to see rates fall in the days ahead, given the moves in the bond market….

","elementId":"c14a77d1-b93c-4a57-8fab-0247479df716"}],"attributes":{"pinned":false,"keyEvent":true,"summary":false},"blockCreatedOn":1689753768000,"blockCreatedOnDisplay":"04.02 EDT","blockLastUpdated":1689754285000,"blockLastUpdatedDisplay":"04.11 EDT","blockFirstPublished":1689754285000,"blockFirstPublishedDisplay":"04.11 EDT","blockFirstPublishedDisplayNoTimezone":"04.11","title":"UK bond yields tumble on inflation relief","contributors":[],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b795f88f0835a0b4953573","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Shares are rallying strongly in the City, as traders cheer the larger-than-expected drop in UK inflation to 7.9% in June.

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The blue-chip FTSE 100 index hit its highest level since 21 June in early trading, and is currently up 93 points or 1.2% at 7,547 points.

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The FTSE 100 jumps on better-than-expected inflation data in the UK pic.twitter.com/CJTUNIliYj

— IG (@IGcom) July 19, 2023

","url":"https://twitter.com/IGcom/status/1681562107060396038","id":"1681562107060396038","hasMedia":false,"role":"inline","isThirdPartyTracking":false,"source":"Twitter","elementId":"2e4eebdd-b1b0-4a77-81aa-9305b508c118"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Housebuilders are among the top risers, reflecting hopes that interest rates will not be raised to 6% or higher as feared.

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Barratt Development, Persimmon and Taylor Wimpey have all jumped around 5%, helped by the falling expectations for UK interest rate rises.

","elementId":"fdbe635c-6c2e-455a-9f72-c222104223ed"},{"_type":"model.dotcomrendering.pageElements.TweetBlockElement","html":"

A whole repricing of UK interest rate expectations takes place as short-end Gilts rally following soft UK CPI figures. Markets now pricing +0.28% increase on Aug 3rd vs +0.44% yesterday. Terminal rate now seen reaching 5.8% compared to an expectation of nearer to 6.25% yesterday.

— Saxo UK (@SaxoUK) July 19, 2023

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Victoria Scholar, head of investment at interactive investor says:

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\n

“European equities have opened in the green and the FTSE 100 back above 7,500 with UK inflation figures in focus.

\n

Housebuilders are at the top of the UK index, hitting a one-month high, thanks to a softer-than-expected CPI reading.

\n

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The FTSE 250 index, which contains smaller companies and is more UK-focused, has surged by around 2.5% this morning with nearly every stock rallying.

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Traders will be hoping that the Bank of England does not need to hike borrowing costs as fast as feared, meaning less damage to the UK economy.

","elementId":"43049d6d-a47f-4290-bf19-8309af4bed2a"}],"attributes":{"pinned":true,"keyEvent":true,"summary":false},"blockCreatedOn":1689753080000,"blockCreatedOnDisplay":"03.51 EDT","blockLastUpdated":1689754423000,"blockLastUpdatedDisplay":"04.13 EDT","blockFirstPublished":1689753643000,"blockFirstPublishedDisplay":"04.00 EDT","blockFirstPublishedDisplayNoTimezone":"04.00","title":"Stock market surges on inflation optimism","contributors":[],"primaryDateLine":"Wed 19 Jul 2023 07.23 EDT","secondaryDateLine":"First published on Wed 19 Jul 2023 01.20 EDT"},{"id":"64b793df8f0835a0b4953565","elements":[{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Grant Shapps, the Secretary of State for the Department for Energy Security and Net Zero, has welcomed the drop in UK inflation to 7.9% this morning.

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He told BBC Radio 4’s Today programme that inflation was effectively a tax on households and businesses:

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\n

“I think we have to stay the course and I welcome the drop this morning, 7.9%.

\n

But of course, that’s still prices 7.9% higher than they were a year ago. This is a very important, significant, effectively tax on households and businesses in this country.

\n

And we want to see it continue to fall. So we’re going to carry on following the plan, which is now working, we’ve come down from 11.1% I think at its peak, and make sure that we support the process, support the bank in the work that they’ve been doing. But also things like the energy price guarantee over the winter were big supports. We’re now seeing energy prices fall and that’s leading to lower inflation as well.”

\n

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Shapps added that nine other EU countries had higher inflation rates than the UK.

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He also poined to the tight UK labour market as one factor pushing up inflation:

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\n

“I think our uniqueness in Europe has been, one of the key aspects has been, we’ve got both the threat that Putin posed from using energy as blackmail, but also incredibly low, tight employment market in the UK, where unemployment is so low, and in fact, we have record numbers of people in work.

\n

So I think that’s made our inflation stickier, but very good to see it come down today.”

\n

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Finally, we have some good news on UK inflation. says James Smith, developed markets economist at ING.

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Smith writes:

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\n

Headline CPI has dropped back to 7.9%, below consensus and almost a full percentage point lower than in May.

\n

Much of that can be put down to petrol and diesel prices, which fell by 2.6% across the month – a stark difference to the same period last year, where we saw a near-10% spike amid the ongoing fallout of the Ukraine war.

\n

But encouragingly, we also saw a marked slowdown in food inflation.

\n

These prices increased by 0.4% on the month, which looks like the slowest month-on-month increase since early 2022. This is a trend that should continue, given that producer prices for food products are now falling on a three-month annualised (and seasonally-adjusted) basis.

\n

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ter/568.jpg?width=480&quality=85&auto=format&fit=max&s=d2750e1929f26d6d19ff7f95ad4882f0","width":480},{"src":"https://i.guim.co.uk/img/media/f613210ba5c132a790f3e355f5a67b3f8bc9802e/0_0_568_293/master/568.jpg?width=480&quality=45&auto=format&fit=max&dpr=2&s=d5f2a4a57d3574e2b0334f56c1a9c9a2","width":960}]}],"elementId":"0a34a4d6-6422-46f1-9299-99793269ed7e"},{"_type":"model.dotcomrendering.pageElements.TextBlockElement","html":"

Smith says the August Bank of England meeting is “going to be a close call”, but today’s data makes a 25bp hike (a quarter of one percentage point) more likely than a repeat 50bp increase.

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He explains:

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\n

The Bank will also be looking at the recent wage data, which was stronger than expected but came alongside figures showing a renewed cooling in the jobs market and improvements in worker supply.

\n

The risk is that the BoE applies a similar logic to that seen in June. This could mean that if it expects to hike again in September, then it might as well opt for a larger 50bp hike in August. We certainly wouldn’t rule this out.

\n

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In the City, investors are rethinking how high the Bank of England will need to raise interest rates, now that inflation has dropped by more than expected to a 15-month low of 7.9% in June.

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The money markets now think there is a 65% chance that the Bank only raises rates by a quarter-point, from 5% to 5.25%, at its meeting in early August.

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A larger, half-point, hike next month is seen as a 35% chance.

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Last night, the odds were the other way around – with a half-point rise seen as a 58% chance (as flagged earlier).

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Looking further ahead, UK interest rates are now seen peaking at around 5.8% in February 2024, down from around 6% yesterday.

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Earlier this month, the markets had priced in rates rising as high as 6.5% by March.

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Mohamed El-Erian, chief economic advisor to Allianz, says this is good news for mortgage holders.

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The immediate reaction of the #markets to the better-than-expected #UK #Inflation includes a weaker #currency as markets are inclined to reprice lower the path of interest rates.
This is good news for those looking for mortgages and have faced higher costs and occasional… pic.twitter.com/SLzUXILzRP

— Mohamed A. El-Erian (@elerianm) July 19, 2023

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Paul Dales, chief economist at Capital Economics, says:

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Overall, the UK will probably still have higher rates of inflation than elsewhere for a while yet, but at least the UK is now following the global trend. Our forecast is that core and services CPI inflation will both ease gradually as the effects of the previous rises in interest rates are felt.

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But with wage growth and services CPI inflation both currently stronger than the Bank had expected back in May, we think there is enough evidence of “more persistent pressures” to prompt the Bank to raise interest rates a little bit further than we previously thought.

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Even so, we think rates are more likely to peak between 5% and 6% than between 6% and 7%.

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Shadow chancellor Rachel Reeves points out that an inflation rate of 7.9% still means prices are rising at ‘staggering rates’.

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That’s an important point – falling inflation does not mean prices are falling (just that they are rising less rapidly).

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Reeves says:

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“Inflation has been persistently high and remains higher than our international peers. This is becoming a hallmark of Tory economic failure.

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“Today’s numbers confirm what families across the country already know – that prices are still going up at staggering rates and that they’re bearing the brunt of those costs.

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“There may be global shocks – but Britain is so exposed to those because of Tory economic failure that has led to a severe lack of security in our economy.

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“Only Labour has the plans Britain needs to put our economy on a more secure path – so that families are better off and so we can grab hold of the opportunities of the future.”

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Sterling has dropped sharply in the foreign exchange markets, as investors react to the drop in UK inflation in June to 7.9%.