United Kingdom: Inflation rises in July, but upturn is unlikely to last
August 15, 2018
Consumer prices were unchanged in July over the previous month, matching June’s figure. July’s reading was underpinned by higher prices for transport; and food and non-alcoholic beverages, which offset lower prices for clothing and footwear; and furniture, household equipment and maintenance.
Inflation in July inched up to 2.5% on higher oil prices, moving slightly further above the BoE’s 2.0% target and marking the first rise since November last year. The figure was in line with expectations. However, domestic inflationary pressures were muted, likely driven by limp wage growth. Annual average inflation remained at 2.7% in July.
Looking ahead, inflation will likely trend gradually downwards as external factors which have generated price pressures in recent months—such as higher fuel prices and the impact of the past sterling depreciation—fade. However, rising domestic cost pressures due to limited economic slack will likely slow inflation’s return to the BoE’s target.
UK Inflation Forecast
According to the August Inflation Report, the Bank of England sees inflation dipping to 2.3% in Q4 2018 and 2.2% in Q4 2019. FocusEconomics Consensus Forecast panelists expect inflation to average 2.5% in 2018 and 2.1% in 2019.
Author: Oliver Reynolds, Economist