Commentary Directory

UK CPI: August 2023

Jacob Hess
September 20, 2023


9/20/2023 (August 2023)

+0.3% MoM (+6.7% YoY)

Below Expectations

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Core CPI +0.2% MoM (+6.2% YoY)
Goods CPI +0.6% MoM (+3.6% YoY)
Services CPI 0.0% MoM (+6.8% YoY)

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Ahead of a crucial Bank of England announcement, the UK's August inflation data revealed a CPI increase of 0.3% MoM and 6.7% YoY, the lowest since February 2022. While energy was the main inflation driver, with a 1.7% MoM surge, it's down by 3.2% YoY. Food inflation moderated to 12.6% YoY, influenced by a rise in alcohol and beverage prices. The core CPI's unexpected 0.2% MoM rise led to a YoY rate of 6.2%, with the services sector's unchanged prices and deflation in several segments contributing to this slowdown. Goods inflation, impacted by energy and food, stood at 6.3% YoY, with some segments showing disinflation.


The Bank of England, which has been a bit more hawkish than its other developed market central bank peers, has been closely monitoring wage and core CPI pressures, which have been more persistent in the UK than elsewhere. This latest report provides one of the first pieces of tangible evidence of inflation easing, primarily driven by a slowdown in service price growth and the largest deceleration in core CPI since the pandemic ended. However, most of disinflation was seen in recreation and travel categories and in just this one month, so it might be risky to change the perspective on inflation based on such a short-term, limited trend. On the other hand, there are signals from the labor market that the demand for hiring is cooling with vacancies falling and the unemployment rate starting to tick up. With that in mind, the Bank of England should be able to get away with a pause, and a clear guidance that it will raise rates in the future if progress on inflation is reversed.