The UK’s annual inflation rate took a notable dip, falling to 6.8% in July from June’s 7.9%. This drop can be attributed to a decrease in energy prices over the last year, resulting in the smallest uptick in the cost of living since February 2022.
Financial markets were prepared for a noticeable relief in upward price pressure last month, and the Office for National Statistics (ONS) reported a figure that was in line with their expectations.
Despite the substantial decline in the Consumer Prices Index (CPI), which is the government’s favoured measure of inflation, experts noted that the overall economic outlook wasn’t improving rapidly enough to prevent the possibility of further interest rate hikes by the Bank of England.
This decrease in CPI marks a significant point where, for the first time since the fall of 2021, prices are increasing at a slower pace than wages. Wages grew by 8.2% year-on-year during the three months leading up to June. This dynamic adds pressure on the Bank’s policymakers to consider a 15th interest rate increase since December 2021 in their upcoming meeting.
The primary contributor to the decline in July’s inflation figures, according to the ONS, was the lack of a substantial surge in gas and electricity bills compared to the same month in the previous year. Additionally, food inflation saw a decline, dropping below 15% on an annual basis.
On the flip side, core inflation, which excludes volatile components such as fuel and food, held steady at 6.9% during the same period. Meanwhile, service sector inflation, a closely watched indicator of domestically generated price pressure, increased from 7.2% to 7.4%.
Despite the substantial decline observed last month, the UK’s inflation rate remained higher than those of both the US (3.2%) and the eurozone (5.3%) in July.