UK prices rose much less than expected in August, lowering the annual rate of inflation to 6.7 per cent and putting pressure on the Bank of England to pause its long run of interest rate rises on Thursday.
The Office for National Statistics’ figures came as a surprise to economists, who had predicted a rise in inflation from 6.8 per cent in July to 7 per cent in August, and led to a rapid sell off in sterling as traders recalculated their expectations of interest rates.
Gilt yields and sterling fell after the data release, with two-year gilt yields declining by 0.15 percentage points to 4.84 per cent. The pound dropped 0.4 per cent to $1.2337, its lowest level since May.
Shares in housebuilders jumped on hopes that the BoE would not raise rates. Taylor Wimpey, Barratt Developments and Berkeley Group were the top three movers in the FTSE 100 in early morning trade, up 5.5 per cent, 4.9 per cent and 4 per cent respectively.