Following historic wage increases, the drop in the overall inflation brings some respite.In the United Kingdom, inflation has slowed to 6.8%, although core price pressures remain.
Despite recent hints of higher wage growth, the UK’s primary inflation indicator declined this past month, falling to its weakest annualized rate since February 2022.
According to the Department for National Statistics, consumer price inflation (CPI) decreased to 6.8% in the 12 months to July, compared to 7.9% in June. Falling gas and power prices were the most significant contributors.
While there were indications of persistent strains in services and other industries frequently monitored by the Bank of England (BoE), the result was in line with economists’ predictions in a Reuters poll.
The core CPI, which excludes volatile sectors like energy and food, stayed constant month on month at 6.9%.
The ONS announced the day before before that wage were increasing at their quickest rate on record, raising fears of a spiraling inflation in certain sectors.
Annualised rise in regular wages was 7.8% through April to June, the highest pace since comparable data began in 2001.
‘Core inflation remains stubborn, and given yesterday’s strong wage growth figures, a 50 basis point [bp] boost in the BoE’s September meeting is not out of the question,’ said Sekar Indran, senior manager of portfolios at wealth firm Titan.
According to Hussain Mehdi, macroeconomic and financial analyst at HSBC Capital Management, there is now a’very good possibility’ of a 25bp increase in Sept. However, given signs of growing unemployment, he downplayed the chances of a 50bp boost.
‘Overall, it’s obvious that the level of UK tightening of monetary policy necessary will be higher than in the United States and Eurozone,’ Mehdi added. The primary concern is whether the United Kingdom’s economy can survive the market’s projection of a 6%-ish ultimate rate with no cuts until 2024.’