Please see below article received from Evelyn Partners this morning, which provides an economic update for the UK.
What happened?
UK July annual headline CPI inflation came in at 2.2% (consensus: 2.3%), versus 2.0% in June. In monthly terms, CPI was -0.2% (consensus: -0.1%), compared to 0.1% in June.
Core CPI inflation (ex-energy, food, alcohol and tobacco) came in at 3.3% (consensus: 3.4%) vs 3.5% in June. In monthly terms, Core CPI was 0.1% (consensus: 0.2%), compared to 0.2% in June.
What does it mean?
Despite headline inflation reaccelerating slightly back above the BoE’s 2% target, unfavourable base effects where largely to blame, as a -0.4% monthly print from July 2023 fell out of the annual comparison. Both headline and core inflation undershot expectations in July with both measures’ comings in 0.1% lower than forecasters had been expecting.
Within today’s data, the category for Housing and household services, which includes energy, was responsible for nearly all this month’s acceleration in the annual rate. Despite the category remaining in deflationary territory, pricing pleasures are easing at a slower rate than they where a year ago, causing the overall annual rate to accelerate. Restaurants and hotels, which had been one of the hotter segments of the economy started to ease in July with the annual rate decelerating to 4.9% from 6.2% the month prior. This move was responsible for the largest negative contribution to the headline annual rate in July.
Despite decelerating in July, it’s the services segments of the economy that continue to run hot, with annual services inflation coming in at 5.2% compared to -0.6% for goods inflation.
However, looking forward:
The slowing trend in core CPI inflation remains broadly intact. Lead indicators, such as producer price inflation remain supportive. Moreover, cost-push led inflation from wages that feed into the service sector is also decelerating. In addition to weakening employment data, annual private sector wage growth slowed to 4.9% in June, down from a peak of 8.2% in June 2023.
Bottom Line
Although the annual rate of headline inflation reaccelerated slightly in July, much of this came because of poor base effects. With all 4 main measures of inflation coming in below expectations today, the inflation picture will remain a source of encouragement to the Bank of England (BoE). Markets are currently still split on if the BoE will cut rates again at their September meeting or if they will replicate the actions of the European Central Bank and pause after their first cut, but committee members will still have one more month of macro data to inform their decision before then.
Please check in again with us soon for further relevant content and market news.
Chloe
14/08/2024