BUSINESS LIVE: Inflation slows to 6.8% in July

Giles Coghlan, Lead Market Analyst at HYCM:

In theory, rising GDP and falling inflation rates should be good news for the UK economy, but in reality other indicators show that Britain’s inflationary fever shows no signs of breaking any time soon.

Although headline inflation has fallen to 6.8%, the latest data suggest that strong wage growth is likely to keep inflation high – not to mention more persistent – ​​in the coming months.

The Chancellor has already warned that wage increases and a rise in clothing prices could see inflation rebound in August, dampening the optimism that today’s release could generate.

With the expected rise in (interest rates) for next month hanging like a dark cloud over today’s release, markets are still pricing in one or two quarter point rises from the Bank of England, which could spell more pain for mortgage holders and first -time buyers in the coming months.

“The market reaction to strong GDP data last week was relatively subdued, and as interest rate expectations gradually ease, this scenario is likely to weigh on the British pound.”

David Baker, partner at Mazars notes:

The surprising strength of CPI suggests that higher inflation may become endemic in the UK as companies enjoy an environment where input prices can be passed on to consumers, and low unemployment strengthens workers’ hand in the face of higher debt.

Industrial action in the public sector has proven effective and has encouraged unions, while the private sector has submitted to higher wages to avoid having to recruit in a tight labor market.

This latest example of labor hoarding is a hallmark of companies being pragmatic in an economy where labor force growth has leveled off in recent years due to the pandemic and a shrinking pool of migrant workers.

“We see this as a delicately balanced dynamic that currently favors labor but could quickly reverse if economic activity slows down.”

Jason Hollands, managing director at investment platform Bestinvest:

This is encouraging progress and will no doubt be touted by the government as evidence that their fiscal prudence is cooperating with the impact of higher interest rates set by the Bank of England.

However, inflation has a long way to go before returning to the Bank of England’s long-term target of 2%, so the battle against inflation is not over yet.

The resilience of the UK economy and the latest wage growth data released yesterday showing nominal wages rising by a record 7.8% – and aggregate wages including bonuses rising to 8.2% – is a double-edged sword.

While many will welcome evidence – given today’s inflation data – that earnings are beginning to grow in real terms, Bank of England ratemakers will be concerned that core inflation is so stubborn and that higher earnings could offset inflationary headwinds. revive, indicating the need for further rate hikes – beyond those already expected.”

Consumer price inflation slowed to 6.8 percent in July, in line with forecasts, although continued high core inflation appears to be keeping pressure on the Bank of England ahead of its next rate-setting meeting.

Core inflation – which excludes volatile food and energy prices – remained at 6.9 percent this month, flat from June and higher than forecasts of 6.8 percent.