Press release

19 Jul 2023 London, GB

Finally, a welcome inflation surprise – EY ITEM Club comments

Consumer Price Index (CPI) inflation fell to 7.9% in June, with the decline driven largely by a fall in petrol prices. Although still well above the Bank of England’s target, the fact that inflation fell by more than the consensus expected and was in line with the Bank of England’s May forecast means another significant rise in Bank Rate next month is now looking less likely.

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James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

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  • Consumer Price Index (CPI) inflation fell to 7.9% in June, with the decline driven largely by a fall in petrol prices. Although still well above the Bank of England’s target, the fact that inflation fell by more than the consensus expected and was in line with the Bank of England’s May forecast means another significant rise in Bank Rate next month is now looking less likely. However, the EY ITEM Club still expects a 25bps rise, with perhaps one more to follow in September.
  • The EY ITEM Club expects inflation to soften considerably over the rest of 2023 as the impact of falling wholesale energy prices feeds through to household bills, declining pipeline prices pressures make their mark and wage growth eases.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “CPI inflation slowed to 7.9% in June from 8.7% in May. The fall in the annual rate was driven by a 3.5% decline in petrol prices between May and June 2023, versus a 9.3% rise in the same period in 2022. June’s decline was also supported by a further easing in food price inflation and a broad-based easing in core price pressures. Core inflation slowed to 6.9% in June from 7.1% the previous month. 

“Given recent inflation releases have consistently come in above expectations, today's downside surprise will be particularly welcome to the Monetary Policy Committee (MPC). Although inflation remains well above the 2% target, the direction of travel is now looking more favourable, following a period when UK inflation appeared to be very sticky in comparison with other economies.

“Looking ahead, the EY ITEM Club thinks inflation should continue to fall quickly over the rest of this year. July’s inflation numbers will see the effect of the near-20% fall in energy bills that month, and the impact of less expensive energy on firms’ costs means core measures of inflation should also steadily fall back. And consumer prices should gradually benefit from what has been a substantial reversal in pipeline price pressures. Producers’ input price inflation turned negative in June for the first time since November 2020, down from growth of almost 25% last summer, and factory gate inflation was at a 30-month low. Moreover, declining inflation expectations and a loosening jobs market should push down pay growth from recent very heated levels. 

“Taking today’s data and what it says about the future, the EY ITEM Club thinks another 50bps rise in Bank Rate next month is now looking unlikely. The EY ITEM Club expects a 25bps increase, with perhaps one more to follow in September, before the rate rise cycle comes to a halt.”