Figures from the Office for National Statistics showed that the United Kingdom’s annual inflation rate rose to 2.2% in July; its first increase since last December. This is slightly lower than the 2.3% rise expected by the Bank of England. Prices fell on a monthly basis by 0.2% in July, influenced by cheaper hotel bookings, however, this was smaller than the 0.4% decrease experienced in July 2023 spurred by energy bill declines, leading to a rise in inflation this July.
Core inflation, which excludes alcohol, energy, food, and tobacco, declined 3.5% from June while rising 3.3% for the year to date. Services sector inflation, which is closely scrutinized by the central bank policymakers, fell from 5.7% to 5.2% in July compared to the previous month.
“Inflation undershooting the Bank of England’s expectations will be seen as a positive sign that price pressures are continuing to normalize for households and businesses,” Martin Sartorius of CBI observed. Money markets are now pricing a 42% chance that the Bank of England will cut its interest rate to 4.75% at its policy meeting next month. This is a rise from the previous 36% probability of an interest rate cut.