Food inflation 'rises' after Bank of England cuts interest rates

The Zhitong Finance APP learned that shortly after the Bank of England lowered interest rates from the highest level in 16 years, it faced new economic data challenges. The latest report from research firm Kantar shows that the inflation rate for groceries in the UK has risen for the first time since March 2023. In the four weeks ending August 4th, supermarket prices increased by 1.8% year-on-year, accelerating from the previous month's 1.6% increase.
This upward trend is an early test for the New Labour government, as Chancellor of the Exchequer Rachel Reeves faces the responsibility of reviving the economy at a time when soaring inflation is putting pressure on families. Kantar's Fraser McKevitt pointed out that although prices have risen again after 17 consecutive months of decline, the inflation level of groceries has fallen back to the average level of the five years before the cost of living crisis.
Consumers are seeking promotional activities to lower their grocery bills, and promotional expenses have increased by 15% during this period. Meanwhile, the sales growth of discount stores Lidl and Aldi reflects shoppers taking advantage of competitive pricing between grocery stores. J Sainsbury Plc's market share increased by 0.5 percentage points year-on-year, marking the largest growth in 27 years, while Asda's market share declined by 1.1 percentage points.
The Bank of England made its first interest rate cut since 2020 earlier this month and hinted at the possibility of further cuts in the future. However, it is expected that the official data released on Wednesday will show a rebound in inflation, which may make policy makers cautious about further interest rate cuts next month. Bloomberg's survey of economists shows that forecasters expect the inflation rate to rise from 2% in May and June to 2.3% in July.
Bank of England Governor Andrew Bailey and members of the Monetary Policy Committee faced a difficult balance after deciding to cut interest rates in early August with a 5-4 vote. The official forecast of the central bank shows that the inflation rate will reach 2.4% in July and warns that inflationary pressures will intensify in the coming months.
On the other hand, the latest data from the UK Office for National Statistics shows an unexpected drop in the UK unemployment rate, which could pose challenges for the Bank of England's interest rate cutting strategy. In the three months ending in June, the unemployment rate decreased by 0.2 percentage points to 4.2%, contrary to economists' expectations of a slight increase. At the same time, the number of employed people surged by 97000, far exceeding expectations.
The economic data to be released this week is expected to set the tone for the Bank of England's next policy decision on September 19th. Investors expect the central bank to further cut interest rates in November, but central bank officials have stated that they will carefully evaluate the intensity of domestic price pressures.
Overall, the direction of the Bank of England's monetary policy is particularly complex under the influence of multiple economic factors. The rise in food inflation, the decrease in unemployment rate, and the expected rebound in inflation rate all provide decision-makers with signals that need to be carefully weighed.