CPI inflation accelerated to 3.8% in July, driven primarily by faster inflation in transport and hospitality. Services inflation climbed to 5.0%, indicating ongoing domestic price pressures. Inflation is assessed to have likely peaked for the year. Price growth is expected to remain above 3% for the remainder of the year. Economic growth is projected to be sluggish while the labour market shows signs of slackening. The Bank of England is expected to proceed cautiously, likely implementing only one further policy rate cut by year-end.
CPI inflation accelerated more than expected to 3.8% in July, driven by faster transport and hospitality inflation. Services inflation also rose to 5.0%, further cementing the existence of persistent price pressure in the economy.
Looking ahead, we believe inflation has likely peaked for the year. However, with price growth set to stay in excess of 3% for the rest of the year, alongside sluggish growth and a slackening labour market, we expect the Bank of England to tread carefully, delivering only one more cut by the end of the year.
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