“Today’s data is not expected to cause significant concern for the Bank of England, with domestic price pressures still moderating and inflation broadly in line with its latest projections. While higher energy prices are putting upward pressure on headline inflation, the MPC is likely to look through this provided underlying price pressures remain contained. We expect interest rates to remain unchanged for the remainder of the year.
“Encouragingly, underlying inflation continued to ease in July, with services inflation slowing to 3.4%. Unlike in 2022, when higher energy prices fed into wider cost increases across the economy, softer labour market conditions are helping to limit the scale of a similar pass-through this time around. Higher energy costs are therefore unlikely to trigger significant second-round effects over the coming months.
“Headline inflation rose to 2.9% in July, driven by a sharp increase in household energy prices after the Ofgem energy price cap went up by 13%. This marks the beginning of a gradual upward trend in inflation, with further increases in energy-related costs expected to push inflation higher over the coming months. It is expected to peak at around 3.5% by the end of the year, although the outlook remains highly dependent on how the conflict in Iran evolves and its impact on global energy prices.”
