UK Consumer Prices Accelerate, Pushing Inflation to a Four-Month Peak in July

British inflation accelerated to a four-month high in July, largely driven by regulators’ decision to raise the cap on household energy bills. At the same time, the fragile situation in the Middle East continues to pose a significant risk of further escalation, which could add to inflationary pressures.

The Consumer Price Index (CPI) rose 2.9% year-on-year in July, up from 2.6% in June, which had marked the lowest reading in more than a year. The figure matched market expectations. On a monthly basis, inflation increased by 0.3% in July, compared with 0.1% in the previous month.

Core inflation, which excludes volatile food and energy prices, remained unchanged at 2.6% year-on-year in July, though it came in slightly above forecasts of 2.5%.

The report also showed that services inflation, a key measure of domestically generated price pressures closely watched by the Bank of England, eased to 3.4% in July from 3.6% in June, in line with expectations.

Meanwhile, inflation in food and non-alcoholic beverages slowed to 1.3% in July, the lowest level in nearly two years. Strong competition among supermarkets helped absorb cost pressures and contributed to the moderation in price growth.

The latest rise in inflation presents a fresh challenge for the Bank of England, coming just a day after data pointed to a slight cooling in the labour market. However, most analysts continue to view the UK economy as resilient, reinforcing expectations that the central bank will leave interest rates unchanged for the remainder of the year.