UK inflation undershoots expectations

UK inflation edged up slightly less than expected to 2.2% in July, marking the first increase this year after aligning with the Bank of England's target rate in the previous two months.

The annual increase in consumer prices, reported by the Office for National Statistics on Wednesday, came in below expectations of a rise to 2.3%. However, the inflation figure remained above the Bank of England's 2% target rate. Price pressures had dropped to that level in May for the first time in three years and stayed steady in June.

Services inflation, the Bank of England's key indicator of domestic price pressures, fell more than anticipated to 5.2% in July, down from 5.7% the previous month. Analysts had predicted a decline to 5.5%. The lower-than-expected inflation figure follows the Bank of England's decision to cut interest rates on August 1st, marking the first reduction since the start of the COVID-19 pandemic.

Price pressures in the UK have steadily eased from their 41-year peak of 11.1% in October 2022. The Bank of England anticipates a slight rise in UK inflation during the second half of this year, projecting it to reach 2.8% by December as the temporary impact of lower energy prices diminishes. The BoE expects consumer price inflation to decrease to 2.2% by the end of 2025, 1.7% in 2026, and 1.5% in 2027.

In the Eurozone, inflation increased to 2.6% in July, up from 2.5% the previous month. Later on Wednesday, data from the US is expected to indicate that annual inflation remained steady at 3% in July.

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