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Headline inflation in the U.K. rose modestly in July, but the underlying picture improved, smoothing the way for another interest rate cut by the Bank of England.
The Office for National Statistics said Wednesday the consumer price index rose by 2.2 percent from a year earlier, a small acceleration from 2.0 percent in the previous two months, as a big fall in energy prices a year ago dropped out of the annual calculations. The ONS’ broadest measure of inflation, which also includes housing costs, also tracked slightly higher to 3.1 percent.
However, service price inflation, which has been the BoE’s chief bugbear for the past year, eased markedly to 5.2 percent from 5.7 percent in June, due largely to a 0.4 percent fall in hotel and restaurant prices from June.
Services prices have a particular importance for the bank because their inputs are overwhelmingly domestic, and as such are a clearer reflection of underlying inflation pressures.
The news comes a day after the ONS reported a further slowdown in wage growth, a key driver of service sector inflation, in June. Taken together, the numbers appear to keep the Bank of England on course for another cut in its key interest rate, which it lowered to 5 percent at the start of August.
Simon French, chief economist at Panmure Liberum, said on X that the inflation numbers were “encouraging” and meant that another cut in the fourth quarter is “likely.”
