What's going on?

In a surprise development, inflation in the UK decreased in June. That makes it less likely that Britain�s central bank will raise its target interest rate at its upcoming meeting…

What does this mean?

In recent weeks, some officials at the Bank of England (BoE) had argued in favor of increasing interest rates in order to quell inflation, which appeared to be rising quickly. High inflation can hurt the economy by, for example, making consumer goods more expensive and, therefore, forcing people to buy fewer things.

If UK interest rates went up, international investors would find it more attractive to invest in Britain (e.g. in government bonds) because these investments would offer higher interest payments. The inflow of money into Britain would, in theory, push up the value of the pound, thus making imports cheaper and putting downward pressure on inflation. But, with inflation rising less than expected, there�s less pressure to increase interest rates.

Why should I care?

The bigger picture: Inflation has been weaker than anticipated in other regions too.

On Friday, a widely followed gauge in the US also showed that inflation was lower than expected. Meanwhile, on Monday, data from the eurozone showed that inflation has fallen in recent months after hitting a three-year high in April. In all cases, a falling oil price is part of the explanation, but it�s by no means the full story (various other factors, like relatively low wage growth, have also played a part).


For markets: Investors are re-evaluating their expectations for interest rate increases.

Only a few weeks ago, expectations of higher interest rates caused a significant bond selloff globally (it also affected other investments). That selloff has somewhat reversed in recent days due largely to the softening inflation data.