The inflation rate in the UK, which tracks changes in prices over time, decreased from 7.9% in June to 6.8% in the year to July.
The decline was primarily caused by lower electricity and gas prices, but price increases in other areas have fueled anticipation that interest rates will be lifted further. Along with the expense of alcohol and tobacco, the price of eating out has increased.
In July of last year, the cost of flights increased by about 30%, according to the latest official data from the Office for National Statistics (ONS).
Although inflation is now far lower than when it peaked in October at 11.1%, it is still high by historical standards and significantly more than the Bank of England’s 2% target.
When the pace of inflation decreases, rather than prices decreasing, it just means that they are rising more slowly. For a while now, earnings have not kept up with rising prices, but data released on Tuesday showed that wages increased 7.8% yearly between April and June, suggesting that things may be changing.
Energy bill decreases were accompanied by a slowdown in price increases for basic foods such milk, butter, bread, eggs, cereal, and fish. However, generally, the price of food has risen by about 15% from a year earlier.
According to Matthew Corder, deputy director of pricing at the ONS, when a reform to the energy price cap, which restricts how much suppliers can charge consumers for what they use, went into effect last month, lowering gas and electricity costs drove down inflation.
While lower energy and food prices may be welcomed by households, Danni Hewson, head of financial research at AJ Bell, predicts that there will be “little cause for celebration” at the Bank of England.
Prices aren’t decreasing; rather, they’re just not rising as quickly as they have in the past. “Inflation is still significantly above that 2% target and even if it is cooling off faster than a sunburned Brit diving into a hotel pool, they’re not falling,” she added.
Service costs have risen due to wage rises and price pressures, which is having a negative impact on core inflation, the speaker continued.
Core inflation, which excludes the cost of energy, food, alcoholic beverages, and tobacco, stayed at 6.9% in July. The Bank of England, which controls interest rates, constantly monitors the rate because it is greater than in Germany, France, and the US.
Many experts predict that the Bank will increase interest rates once again in September in an effort to limit price increases because inflation is still more than three times its 2% target.
At first appearance, the UK appears to be moving toward a more “normal” economic state as a result of the sudden drop in inflation to below 7%. The underlying indicators of inflationary pressures across the economy, however, are no longer trending upward.
Back up to 7.4%, services inflation is at its joint-highest level since 1992. Core inflation, which excludes volatile prices for food and energy, stayed at 6.9%.
These measurements are important because they reveal how much inflation is still present in the economy after the direct effects of the energy shock have subsided. This collection of data raises the possibility that September and possibly October will see additional interest rate increases.
