United Kingdom: Inflation falls to over one-year low in July
Inflation fell to 6.8% in July from June’s 7.9%. July’s result marked the weakest inflation rate since February 2022 and was in line with market expectations. The decline was broad-based, with reduced price pressures recorded for recreation and culture, transportation, and food and non-alcoholic beverages.
In addition, the trend pointed down, with annual average inflation coming in at 9.5% in July (June: 9.8%). Meanwhile, core inflation edged down to 6.8% in July, from June’s 6.9%.
Lastly, consumer prices fell 0.43% over the previous month in July, swinging from June’s 0.13% rise. July’s result marked the weakest reading since January.
With headline inflation and core inflation still over triple the Central Bank’s 2% target rate and regular pay growth at a record high, another rate hike at the Central Bank’s September meeting seems highly likely.
On the data and monetary policy outlook, Berenberg analysts said:
“While price pressures are still much too high, especially in measures of domestically generated inflation, headline inflation is now falling as quickly as the BoE had projected in August and slightly faster quickly than it had projected back in May […] given the additional tightening impact ahead due to normal lagged effects of past policy steps, we continue to expect just one more hike in September to a peak of 5.5% – with the risk of a final 25bp hike in November.”