reply Inflation retreats, Bank of England may cut interest rates

On October 16, the latest inflation data released by the Office for National Statistics (ONS) showed that the UK CPI rose 1.7% year-on-year in September, down 0.5 percentage points from August, and was below the market's expectation of 1.9%, hitting a new low of more than three years; the core CPI rose 3.2% year-on-year, down 0.4 percentage points from August. UK inflation fell back to less than 2% for the first time since April 2021, according to Li Yingting, a researcher at the Bank of China Research Institute, the market is expected to increase the Bank of England interest rate cuts.Reasons for the marked fall in UK inflation in September included a sharp decline in airfares and gasoline prices as well as a marked slowdown in service sector inflation. Commodity prices remain the main factor in the fall in inflation. In September, UK commodity prices continued the downward trend of the previous period, falling by 1.4% year-on-year, with the rate of decline expanding by 0.5 percentage points compared with August. Among them, clothing and footwear prices rose 0.8% year-on-year, down 0.8 percentage points from the August rise, and furniture and other household goods prices fell 1.0% year-on-year, but food and non-alcoholic beverage prices rose 1.9% year-on-year, up 0.6 percentage points from August.UK service prices rose 4.9% year-on-year in September, a decline of 0.7 percentage points from the August increase, which has eased concerns about the persistence of service inflation stubbornness concerns. In particular, price increases for culture and entertainment, education, and hotels and restaurants were all lower than in August. UK transportation prices fell sharply by 2.2% year-on-year in September due to a sharp drop in airfares and motor fuel prices, a significant factor in the slowdown in services inflation.High base effects and a softer labor market drove the continued fall in U.K. inflation. The UK price index with 2015 prices as the base period reached above 130 in 2023, forming a high base effect. since 2024, international energy prices have eased, and problems such as energy shortages, although not yet fully resolved, have not seen any new large-scale shocks, with a small fluctuation in the UK price index around 134, enabling inflation to gradually return to the central bank's inflation target of 2%. At the same time, UK payroll growth slowed. The labor market data released by the Office for National Statistics on the 15th showed that real inflation-adjusted wages in the U.K. grew by 1.9% year-on-year from June to August, a decline of 0.3 percentage points over the growth rate from May to July, which to a certain extent reduces the market's concern about the wage-price spiral. The weaker labor market reflects the weakening supply-side growth momentum in the U.K. The U.K. manufacturing and services PMIs stood at 51.5% and 52.4% respectively in September, higher than the Rongxu level, but 1.0 and 1.3 percentage points lower than the August values. Supply-side weakness may spread to the demand side, September food and non-alcoholic beverages and other necessities prices rose, continue to push up the cost of living of residents, so that the United Kingdom is still facing the risk of recurring inflation.UK inflation fell back to the central bank's target range for monetary policy and fiscal policy to release more space. First, the fall in inflation for the Bank of England to cut interest rates to provide the preconditions. After the release of the September inflation data, the market generally expected the Bank of England will be continuous small rate cuts, the probability of a 25 basis point cut in November more than 90%, the possibility of continuing to cut interest rates by 25 basis points in December is also higher, the benchmark interest rate is expected to 2024 is expected to fall to 4.5% during the year. Secondly, the fall in inflation has eased the UK government's fiscal pressure to a certain extent. As UK inflation continues to fall, government spending on inflation-linked welfare payments is expected to decrease. At the same time, the interest rate cut by the Bank of England will reduce the government's interest expenditure, so that the British government has more fiscal policy space for reaching the goal of protecting the income of residents and families, enhancing the level of public services, and increasing infrastructure investment.In order to bring the British economy back to the track of revitalization, the Labour government, which came to power in July, realized that the recovery and growth of the British economy cannot be separated from the cooperation with China. A few days ago, the British Trade Minister Reynolds even directly talked about the need to strengthen communication and contact with China in the future. In order to strengthen the exchanges between China and the United Kingdom, the British Minister for Foreign Affairs and Development, Mr. Lammy, made an official visit to China from October 18th to 19th. Chinese Foreign Ministry spokesman Mao Ning said on the 17th, China and Britain are both permanent members of the United Nations Security Council and the world's major economies, the long-term and stable development of relations between the two countries is in line with the common interests of both sides, and is also conducive to international solidarity to deal with global challenges, and to promote world peace and development. Mao Ning pointed out that this visit is the first cabinet minister of the new British government to visit China, and the two sides will focus on the implementation of the important consensus reached by the leaders of the two countries in their August call to enhance strategic mutual trust and strengthen dialogue and cooperation in various fields. China is willing to work with the British side to uphold the positioning of partnership, adhere to openness and cooperation, promote mutual benefit and win-win, and promote stable and far-reaching Sino-British relations.