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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK facing ‘high’ risk of recession despite inflation dropping to 6.8% – as it happened

Inflation United Kingdom United States Office for National Statistics Rachel Reeves ​​Rishi Sunak The Bank of England
A customer looks at the price of eggs at the Tesco supermarket, in Amesbury, England.
A customer looks at the price of eggs at the Tesco supermarket, in Amesbury, England. Photograph: Justin Tallis/AFP/Getty Images

Closing post

A quick recap.

Fears are swirling that the UK could be pushed into recession by high interest rates, despite a welcome drop in inflation this morning.

The UK’s annual inflation rate fell sharply to 6.8% in July, from 7.9% in June, as the drop in energy prices over the past year led to the smallest increase in the cost of living since February 2022.

Despite the large fall in the consumer prices index (CPI), the government’s preferred measure of inflation, analysts said the outlook was not improving rapidly enough to prevent further interest rate increases from the Bank of England.

Dr George Dibb, head of IPPR’s Centre for Economic Justice, warned that higher borrowing costs would hit growth, saying:

“It’s good news that headline inflation is lower, especially with energy bills coming down, but there is a very real risk that a recession may soon overtake price rises as the main economic concern.

The financial markets are indicating that another rate hike, in September, is nailed on – probably lifting Bank rate from 5.25% to 5.5%, on the way to a peak of 6% next February.

The drop in CPI means that for the first time since autumn 2021, prices are increasing less rapidly than wages, which rose by 8.2% year on year in the three months to June, adding to pressure on Bank policymakers to increase rates for a 15th time since December 2021 when they meet next month.

The ONS said the main reason behind July’s fall was that the big jump in gas and electricity bills in the same month last year had not been repeated, although there was a decline in annual food inflation last month to below 15%.

Matthew Corder, the ONS deputy director of prices, said:

“Inflation slowed markedly for the second consecutive month, driven by falls in the price of gas and electricity as the reduction in the energy price cap came into effect. Although remaining high, food price inflation has also eased again, particularly for milk, bread and cereal.”

But core inflation, which strips out volatile items such as fuel and food, was unchanged at 6.9% last month. Service sector inflation, closely watched by Threadneedle Street as an indicator of domestically generated price pressure, picked up from 7.2% to 7.4%.

Here’s the full story:

Some economists warned that the government could still miss its target of halving inflation by the end of this year.

Prime minister Rishi Sunak told ITV News:

“I’m not complacent about this at all.

“When I set out that target, people said – that’s easy, he’s not ambitious enough – I don’t think it was, I think it’s an ambitious target.

“It might make people feel better in the short term to borrow lots of money to do lots of things but it would also mean that prices stay higher for longer and mortgage rates stay higher for longer and I’m not going to do that.”

Chancellor Jeremy Hunt warned that the battle against inflation wasn’t over, saying:

While price rises are slowing, we’re not at the finish line.

Shadow chancellor Rachel Reeves pointed out that UK inflation was higher than many other major economies, adding:

“After 13 years of economic chaos and incompetence under the Conservatives, working people are worse off”.

Simon French, chief economist at Panmure Gordon, has flagged that the UK’s inflation rate is still over two percentage points above the G20 average…. but it is closing the gap….

Sunak: Halving inflation is an ambitious target

Rishi Sunak said his goal of halving inflation by the end of the year was “an ambitious target”, as analysts question whether he will hit it.

The Prime Minister told ITV News that he wasn’t complacent about the goal, and echoed John Glen’s argument this morning that borrowing and spending more would be inflationary.

Sunak said:

“When I set out that target, people said – that’s easy, he’s not ambitious enough – I don’t think it was, I think it’s an ambitious target.

“It might make people feel better in the short term to borrow lots of money to do lots of things but it would also mean that prices stay higher for longer and mortgage rates stay higher for longer and I’m not going to do that.”

The IFS aren’t the only ones suggesting UK inflation might not fall to around 5% by the end of the year (as covered earlier), to hit Sunak’s goal [CPI rose by 10.5% in December 2022].

The Resolution Foundation’s research director James Smith said that accelerating pay growth will make even the Prime Minister’s promise to halve inflation hard to meet, warning:

“Inflation has fallen rapidly over the past six months, but the UK still has the highest rate in the G7 and the Bank faces a daunting task in further taming price pressures.”

Updated

The European Economics team at Nomura predict UK interest rates will peak at 5.75%, up from their current 15-year high of 5.25%.

They say:

The debate on Bank Rate had been for only one more hike versus two more. Yesterday’s strong wage growth and today’s resilient services CPI data will likely push the BoE to, in our view, hike twice more, bringing Bank Rate to 5.75%.

Market pricing of approximately 6% for Bank Rate is likely too aggressive. We will have more labour market and inflation data ahead of the September meeting.

While the UK risks a recession, the Netherlands has fallen into one.

Data released this morning showed that Dutch GDP shrank by 0.3% in the second quarter of 2023, following the 0.4% drop in January-March.

That meets the technical definition of a recession – at least two consecutive quartly falls in GDP.

The contraction was mostly driven by declining international trade and household consumption, with ING saying:

The main reasons for the quarter-on-quarter contraction were falling goods exports, falling consumption of households and an increase in imports.

Despite the risks of recession, ratings agency Moody’s predicts the Bank of England will not lower UK interest rates quickly.

David Muir, senior economist at Moody’s says core inflation, which stuck at 6.9% in July, will concern the Bank:

“Headline inflation eased significantly in July, but the decline was driven by the update of Ofgem’s energy price cap last month. For the Bank of England the main focus is on underlying inflationary pressures, and these aren’t showing much sign of moderating.

Meanwhile, wage growth continues to strengthen, so it seems all but certain that the BoE will raise rates again in September. Looking further ahead, we see another rate rise in November as more likely than not. And once rates peak at 5.75%, we think the BoE will be able to lower them only slowly.”

While London house prices are falling, rents in the capital are climbing.

New ONS data shows that the average rental price in London climbed by 5.5% year-on-year in July, the highest since in the data series began at the start of 2006.

Overall, UK rents rose by 5.3% in the 12 months to July, the ON says, up from 5.2% in June.

Other data sources have shown a steeper rise in rents, though. Last month, property website SpareRoom said the average price of renting a room in April-June was 17% higher than a year ago.

UK inflation: which goods and services have changed most in price?

Although inflation fell in July, there were still some sharp price increases.

Among food, for example, sugar prices are 54.5% higher than in July 2022 while olive oil costs 41.5% more and fruit and vegetable juices are over 20% pricier.

Gas prices were 1.7% higher than a year ago, thanks to a 25% drop in prices between June and July as the lower energy price cap kicked in.

Among clothing, women’s shoes were 5.5% more expensive, ahead of a 4% rise in men’s footwear.

New cookers cost 10.5% more than last year, while glasswear was 1.9% cheaper, and new cars cost 4.4% more.

Here’s a full breakdown of the inflation report:

House price inflation has also slowed, led by a drop in price in London.

The Office for National Statistics reports that the average UK house prices increased by 1.7%, or £5,000 in the 12 months to June, to £288,000.

That’s also £5,000 below the recent peak in November 2022.

Prices in London were 0.6% lower than a year ago, the ONS says, while prices were 4.7% higher over the last 12 months in the North East.

But…. lenders Nationwide and Halifax have both reported UK house prices fell year-on-year in June. Their reports are based on mortgage lending, while the ONS include cash buyers, so should give a clearer (if more dated) picture of the market….

Newsnight’s Ben Chu points out that core inflation looks ‘worryingly sticky’, and also higher than in other G7 countries:

Economists at French bank BNP Paribas says the Bank of England is very likely to raise UK interest rates to 5.5% next month, although a large hike to 5.75% can’t be ruled out.

They say:

  • Today’s July inflation data by itself shouldn’t move the needle for the Bank of England. The figures were broadly in line with its expectations and showed an encouraging further sign of cooling, on the whole.

  • However, with yesterday’s labour market figures revealing that wage growth is still accelerating, the risk is that this declining trend in price pressures proves unsustainable or short-lived.

  • Our overall reading of this week’s data therefore is that the MPC still has work to do. Another 25bp hike in September is all but nailed on and while 50bp cannot be ruled out, we think the risk is tilted towards an even longer tightening cycle.

Food prices were almost flat in July, according to the inflation report, which shows a 0.1% increase in prices month-on-month.

That left annual food price inflation at 14.9%.

Helen Dickinson, chief executive of the British Retail Consortium, has warned there are “potential stumbling blocks ahead” that could prevent food prices normalising faster.

Russia’s withdrawal from the Black Sea Grain Initiative and subsequent targeting of Ukrainian grain facilities, as well as rice export restrictions could put pressure on some global commodity prices, slowing the fall in food prices

Many households will find their mornings getting cheaper, with “price drops in tea, coffee, milk, breakfast cereals and fruit”, Dickinson added.

James Smith, research director at the Resolution Foundation, has written a detailed thread about today’s inflation report – showing that the UK still has the highest inflation rate in the G7:

The drop in CPI inflation to 6.8% last month confirms that real wages are, finally, rising again. At least for some workers.

Yesterday’s labour market report showed that total pay rose by 8.2% per year in April-June, swelled by bonus payments to NHS staff. Regular pay (excluding bonuses) rose by 7.8%.

That’s still below today’s RPI inflation measure, though, of 9%.

Private sector pay rose by 8.2% per year, on average, while the public sector lagged behind at 6.2%.

TUC general secretary Paul Nowak points out that workers have suffered a long squeeze in real earnings:

“We all want to see lower inflation. But it will take more than price rises slowing for working people to feel better off – especially with food bills remaining sky high.

“Real wages are still worth less today than in 2008 after the longest pay squeeze in 200 years. And at the same time, unemployment and insecure work are shooting up.

“Our economy is far from out of the woods – too many long-run challenges remain unaddressed.

“We need a credible plan to deliver decent well-paid jobs across the country. The Conservatives have yet to produce one despite being in office for the past 13 years.”

Julian Jessop, economics fellow at the Institute of Economic Affairs, the right-wing tank, argues that that Bank of England should resist raising interest rates in September.

Jessop says the BoE should pause, and assess the impact of its previous 14 increases in interest rates:

“The inflation data shows a welcome fall in the headline rate, but core inflation that excludes food and energy remains stuck at 6.9%. The headline rate is also likely to tick up in August, reflecting higher fuel and alcohol prices, some unhelpful base effects, and the continued strength of the labour market.

“There are still plenty of reasons to expect inflation to tumble over the rest of the year, notably the sharp slowdown in money and credit growth. Rising unemployment and falling vacancies suggest that wage pressures will soon peak too.

“Unfortunately, the Bank of England continues to look backwards at the headline data over the last month or two, rather than pause to assess the impact of the substantial tightening in policy that is already in place. This makes another unnecessary interest rate increase more likely.”

IFS: Stubborn inflation puts PM's inflation target in jeopardy

The Institute for Fiscal Studies, though, is not convinced that Sunak will hit his pledge to halve inflation by the end of 2023.

Heidi Karjalainen, a research economist at the IFS, says the higher-than-expected core inflation (6.9% in July) suggests Sunak’s promise is at risk.

Karjalainen says:

The Prime Minister’s target to halve the rate of inflation by the end of the year was always a little odd as there is only so much the Treasury can do to influence the pace of price increases.

When the target was set, the Prime Minister may have hoped he could rely on falling in energy prices to do most of the work to hit it. However, the stubbornly high rate of price inflation for goods and services other than food and energy has put the target in jeopardy.

With only 4 months to go, it no longer seems at all clear that inflation at the end of the year will have fallen by enough to achieve it.”

Karjalainen suggests that rapid wage growth in the private sector could push core inflation rates upwards, and points out that petrol prices are also rising again this month.

A chart showing UK inflation

Kallum Pickering, senior economist at Berenberg Bank, predicts inflation could “fall fast” in the next few months, and drop below 5% by the end of 2023.

That would mean Rishi Sunak could claim victory in his aim of halving inflation this year (although, as the Today programme flagged earlier, falling prices of global oil and food must take some credit).

Pickering says:

UK fundamentals are now decidedly disinflationary.

Monetary policy is turning ever tighter (that is, almost by definition, disinflationary), consumer inflation expectations are falling, producer prices are normalising, unemployment is rising and vacancies are down sharply.

If these trends continue, inflation should fall fast over coming months towards a 4-5% yoy rate by the end of the year and to within the 2-3% range by the middle of next year. While elevated wage growth presents an upside risk to this call, the evidence suggests wages are lagging inflation rather than leading it.

Updated

UK inflation will continue to decline from here as lower energy and goods prices continue to feed through, predicts Thomas Pugh, economist at audit, tax and consulting firm RSM UK.

Pugh explains:

Output prices at factories fell by 4.8% in July – a good sign for future goods price inflation. What’s more, growing slack in the labour market as labour supply improves and demand for labour ease a little should reduce wage growth over the next year, limiting the risk of a wage-price spiral.

A chart showing annual input and output PPI inflation rates continued to slow in July 2023, with both annual inflation rates now negative
A chart showing annual input and output PPI inflation rates continued to slow in July 2023, with both annual inflation rates now negative Photograph: ONS

Pugh adds that the Bank of England is likely to raise interest rates again next month, but the peak in borrowing costs could be close:

Overall, inflation, especially core and services, is still too high for the MPC to tolerate, which, combined with fast wage growth, means another rate hike is September is a sure bet.

But cooling inflationary pressures means this can be another 25bps hike and that the peak in interest rates is not far off.

Petrol and diesel prices also pulled inflation down in July.

The ONS reports that motor fuel prices fell by 24.9% in the year to July 2023, compared with a fall of 22.7% in June.

Petrol cost an average of 143.2p per litre in July, down from 189.5p a year ago – when the surge in crude oil prices after the Ukraine invasion pushed up prices at the pumps.

Diesel dropped to 145.2p per litre, on average, down from 197.9p per litre in July 2022.

But on a monthly basis, petrol prices rose by 0.2p per litre between June and July, while diesel prices dropped by 0.5p in the month.

Rail fare increase is a “delicate difficult decision"

Today’s inflation report means that national rail fares will rise by less than 9% next year, but it’s not clear yet quite how much extra passengers will pay.

July’s retail prices index measure of inflation, or RPI, rose by 9.0% in the last year, the ONS reported this morning.

Although RPI is a discredited measure, it is used to price many price increases – and traditionally, rail fare increases have been based on the July RPI reading.

However, the government said yesterday that any rail fare increase will be below RPI, matching their policy a year ago (when fares rose in line with wages).

This morning, Treasury minister John Glen told Sky News that the increase for 2024 hasn’t been decided yet.

Glen said:

“We have said that we will keep it below inflation. Obviously I will be working closely with Mark Harper, the Secretary of State, on what mechanism to use.

But there are tough decisions now around how to use his budget in a way that suits commuters and suits the economy as a whole, delicate difficult decisions. We have not come to the end of that discussion yet.”

The Green Party has urged ministers to freeze rail prices.

Their co-leader, Adrian Ramsay, said yesterday:

“This government is moving in completely the wrong direction. Fuel duty has been frozen since 2011, while air passenger duty cuts this year will be a disaster for the climate crisis by encouraging people to fly more.

“This is despite the fact UK rail passengers are already paying more to travel by train [2] than flying and are faced with some of the most expensive tickets in Europe.

John Glen: Inflation is too high

John Glen, chief secretary to the Treasury, has agreed that UK inflation is still ‘too high’.

Speaking to Radio 4’s Today programme, Glen says:

I recognise that whilst this is great progress today, inflation is too high.

Getting inflation down, and halving it this year, is the government’s top priority, Glen says, insisting:

We’re on track to do that.

Q: Inflation has come down because global oil and food prices have fallen. What in the government’s plan has contributed to inflation coming down today?

Glen argues that the government’s fiscal responsibility has helped….

Well, I certainly think if if I was deciding as Chief Secretary, with the Chancellor and Prime Minister, to borrow a lot more money or to spend a lot more money, it would have an effect.

Q: That’s something you haven’t done…what have you actually done that has contributed to the fall in inflation?

Glen argues that keeping a grip on the financial purse strings is an active choice, when there are pressures to spend more.

As he puts it:

I can tell you, to hold to the budgets that we set out in the spending review in an inflationary environment when there are massive calls to spend money all the time is an active choice.

Glen claims the opposition are “going to spend a lot more, and borrow a lot more”.

Inflation down but recession risk now high, IPPR warns

Although inflation has fallen, the UK now faces a “high” risk of recession, warns the IPPR thinktank.

The IPPR fears that the recent increases in UK interest rates, to a 15-year high of 5.25%, will drag the economy into a contraction.

Dr George Dibb, head of IPPR’s Centre for Economic Justice, said:

“It’s good news that headline inflation is lower, especially with energy bills coming down, but there is a very real risk that a recession may soon overtake price rises as the main economic concern.

Other countries have brought inflation under control quicker than in the UK, with more support for households and workers avoiding unnecessary pain.

The financial markets are expecting another increase in UK interest rates, in September, to at least 5.5%, with rates forecast to hit 6% by early next year.

But, as Dibb points out, monetary policy operates with a lag – so another hike could simply “kill” the recovery:

“Interest rate hikes take up to a year and a half to fully filter through to the economy. One year from now, ‘pass the parcel inflation’ might be over, but further interest rates might also have killed the recovery - there are already signs of falling consumer confidence and rising unemployment.

“Even today it’s important to note that while inflation might be falling, prices are not. Households are still struggling with high prices, especially those on the lowest incomes. By supporting households and businesses with energy costs, making businesses play their part, and supporting renters, countries like Spain have shown that inflation can be brought down without the economy going into tailspin.”

Rachel Reeves correctly flagged earlier that inflation, at 6.8%, is still higher in the UK than in many other major economies.

For example, in the US, inflation was just 3.2% in July, slightly up from 3% in June.

In the eurozone, annual inflation was 5.3% in July, with inflation estimated at 6.5% in Germany, and 5% in France.

Japan’s inflation rate was 3.3% in June, with July’s figures due on Friday.

While China has slipped into deflationary territory, with its consumer price index down by 0.3% year-on-year in July.

Updated

Core inflation stubbornly high

Worryingly, core inflation was a little higher than hoped last month.

Core CPI inflation, which strips out energy, food, alcohol and tobacco, rose by 6.9% in the 12 months to July 2023.

That’s slightly higher than the 6.8% which economists expected.

Although annual goods inflation slowed, from 8.5% to 6.1%, services inflation increased to 7.4% to 7.2%.

Oliver Blackbourn, multi asset portfolio manager at Janus Henderson Investors, warns that core inflation “remains stubbornly high” at 6.9% and is now slightly above the headline level.

Blackbourn adds:

This presents a headache for the Bank of England (BoE) as it will want to see this less volatile measure decline to suggest that cost pressures are sustainably returning to target.

“Core inflation suggests a stickier underlying inflation dynamic as services cost growth continued to accelerate.

Data: Why UK inflation slowed

Inflation is measured using a wide basket of goods, to track how the cost of living changed.

Here’s the key changes, that pulled annual inflation down to 6.8% in the year to July.

  • Food and non-alcoholic beverages: 14.8%, down from 17.3% in June

  • Alcoholic beverages and tobacco: 9.4%, up from 9.2% in June

  • Clothing and footwear: 6.6%, down from 7.2% in June

  • Housing, water, electricity, gas and other fuels: 6.8%, down from 12.0% in June

  • Furniture, household equipment and maintenance: 6.2%, down from 6.5% in June

  • Health: 8.9%, up from 8.2% in June

  • Transport: -2.0%, down from -1.8% in June

  • Communication: 7.1%, down from 9.5% in June

  • Recreation and culture: 6.5%, down from 6.7% in June

  • Education: 3.2%, matching June’s 3.2%

  • Restaurants and hotels: 9.6%, up from 9.5% in June

  • Miscellaneous goods and services: 6.0%, down from 6.5% in June

A chart showing changes in UK inflation

Updated

Inflation: the political reaction

Political reaction to this morning’s inflation report is flooding in.

Chancellor of the Exchequer Jeremy Hunt claims the government’s ‘decisive action’ has pulled inflation down, saying:

“The decisive action we’ve taken to tackle inflation is working, and the rate now stands at its lowest level since February last year.

“But while price rises are slowing, we’re not at the finish line.

“We must stick to our plan to halve inflation this year and get it back to the 2% target as soon as possible.”

But shadow chancellor Rachel Reeves points out that inflation is still high, and also “higher than many other major economies”.

Reeves adds:

“After 13 years of economic chaos and incompetence under the Conservatives, working people are worse off – with higher energy bills and prices in the shops.

“Labour’s plan to build a strong economy will make working people better off by boosting growth, improving living standards and cutting household bills.”

Food and drink inflation falls, but still high

Food inflation slowed last month, but prices are still sharply higher than a year ago.

Food and non-alcoholic beverage prices rose by 0.1% between June and July 2023, compared with a rise of 2.3% between the same two months a year ago.

That pulled the annual rate of inflation for food and non-alcoholic beverages to 14.8% in July, down from 17.3% in the year to June.

UK food and non-alcoholic drink inflation
UK food and non-alcoholic drink inflation Photograph: ONS

The easing in the annual rate was widespread, with inflation falling in 10 of the 11 areas of food and drink products, the ONS says.

Three of the ten classes also saw a fall in monthly price between June and July 2023, including milk, cheese and eggs – reflecting recent milk price cuts by supermarkets.

The second-largest downward contribution came from the bread and cereals category, where annual inflation slowed to 9.8% from 11.4% in June.

Updated

Matthew Corder, ONS deputy director of prices, says inflation “slowed markedly” in July, for the second month running:

“Inflation slowed markedly for the second consecutive month, driven by falls in the price of gas and electricity as the reduction in the energy price cap came into effect.

“Although remaining high, food price inflation has also eased again, particularly for milk, bread and cereal.

“Core inflation was unchanged in July, with the falling cost of goods offset by higher service prices.”

Falling energy prices pull down inflation

Falling gas and electricity prices provided the largest downward contributions to UK inflation in July.

That’s because the UK’s energy price cap was lowered at the start of July, to £2,074 a year for a typical household, below the government’s energy price guarantee of £2,500 per year.

The ONS says:

Prices of gas fell by 25.2% between June and July this year, but rose by 0.1% between the same two months a year ago.

Prices of electricity fell by 8.6% between June and July this year but rose by 0.4% between the same two months a year ago.

Housing and household services, particularly gas and electricity, made the largest downward contribution to the change in UK inflation in July

UK CPI inflation

On a monthly basis, consumer prices fell by 0.4% in July alone.

UK INFLATION HITS 17-MONTH LOW

Newsflash: The UK’s inflation rate has fallen to its lowest level since spring 2022, the start of the Ukraine war.

The Consumer Prices Index rose by 6.8% in the year to July, the Office for National Statistics reports, down from 7.9% in June, meeting City economists’ expectations.

That’s the lowest inflation rate since February 2022, and further from the peak of 11.1% set last October.

But it still leaves inflation well over the Bank of England’s target of 2%.

More to follow…

Updated

Today’s inflation report will be watched just as closely in Westminster as in the City of London.

Yesterday, Rishi Sunak – who has pledged to halve inflation by the end of this year – insisted that conditions are improving:

“We are making progress, the last set of numbers we had showed that inflation was falling faster than people expected.

“The plan is working. I think there is light at the end of the tunnel.

“If we get through this, people will really start to see the benefit in their bank accounts, in their pockets, as inflation starts to fall.”

But Labour got their prebuttal in early, pointing out that households have suffered badly in the cost of living squeeze.

The opposition accused Sunak of overseeing a £350 increase in monthly bills for the average household since 2021/22.

Shadow economic secretary Tulip Siddiq said:

“Families in Britain are worse off because of 13 years of economic chaos and incompetence under the Conservatives.

“We’ve had a decade of low growth, low pay and high taxes. Now families are paying the price of the Conservatives’ cost-of-living crisis with higher bills and prices in the shops.

“If Labour were in power today, we would introduce a proper windfall tax on the huge profits the oil and gas giants are making to help families with the cost of living.

“Labour’s plan to build a strong economy will boost growth, increase wages and bring down bills so working people are better off.”

Updated

Introduction: UK inflation report in focus

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK may get some respite in the cost of living squeeze today, but inflationary pressures are not over.

The latest inflation report, due at 7am, is expected to show that prices rose at a slower rate in July, partly because households benefited from the drop in the energy price cap last month,

Economists predict the annual rate of inflation slowed in July, to around 6.8%, down from June’s 7.9%. That would be the lowest rate of price rises since spring 2022.

Yesterday we learned that basic pay is rising at the fastest rate in at least two decades, with regular wages rising by 7.8% in the April-June quarter. So today could bring a welcome return of rising real wages.

That would be a relief for workers, but could also encourage the Bank of England to raise interest rates.

And it’s important to remember that falling inflation does not mean prices are falling – simply that they are rising less sharply, compared to a year ago.

Henk Potts, market strategist at Barclays Private Bank, sets the scene…

“We expect the UK July inflation print to show a further moderation in price pressures. We anticipate headline consumer price index (CPI) to ease to 6.7% year on year, compared to the 7.9% increase registered in June. In our view the deceleration should primarily be driven by an easing of energy prices and reflect the decrease in the Ofgem price cap.

“We would also expect food, alcohol and tobacco price rises to continue to slow due to lower producer prices. We expect less progress to be made in services, where pricing is strong and wage growth continues to be robust.

“Despite the improvement in price pressures, the Bank of England is not yet in a position to declare a cessation of hostilities with its battle with inflation. We estimate that UK inflation will remain above the 2% target through 2024 and therefore expect a further quarter-point rate increase at the Monetary Policy Committee’s September meeting.”

The agenda

  • 7am BST: UK inflation report for July

  • 9.30am BST: UK house prices and rents data

  • 10am BST: Eurozone GDP report for Q2 2023

  • 11am BST: Ireland’s residential property prices data

  • 1.30pm BST: US housing starts data

  • 7pm BST: US Federal Reserve releases minutes of its last meeting

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