In July, the United Kingdom experienced a significant decrease in its annual inflation rate, reaching a 15-month low. This development comes as a relief amid the ongoing cost-of-living crisis, with the Consumer Prices Index (CPI) increasing at an annual rate of 6.8 percent, a decrease from 7.9 percent in June, according to the Office for National Statistics (ONS).
This reduction in the CPI aligns with the predictions of analysts and the Bank of England, which had anticipated a 6.8-percent rate. The decrease follows a larger-than-expected drop in June, when the CPI fell by 0.8 percent. Despite recent reductions, the UK’s inflation rate has been the highest among the G7 nations for several months, even as the Bank of England has repeatedly raised its key interest rate to address the issue.
The easing of inflation in July was primarily driven by a decline in gas and electricity prices. However, food prices continued to rise, albeit at a slower pace compared to the same period last year. Matthew Corder, ONS Deputy Director of Prices, noted that food price inflation, particularly for essentials like milk, bread, and cereal, has also moderated.
Core inflation, which excludes volatile items such as food and energy, remained unchanged in July, balancing out the falling cost of goods with higher service prices.
Prime Minister Rishi Sunak has set a goal to halve inflation to around five percent by 2024. Despite this optimistic outlook, the Bank of England projects that inflation may rise again in the coming month due to public sector pay increases. Sunak, however, remains confident, asserting that the current data indicates the effectiveness of his plan.
The Institute for Fiscal Studies (IFS), however, expressed skepticism about meeting the inflation target, citing the persistent high rate of price inflation in areas other than food and energy.
Finance Minister Jeremy Hunt acknowledged the positive direction indicated by the latest CPI data but emphasized that achieving the Bank of England’s two percent inflation target remains a primary objective.
Recent data also highlighted an increase in UK unemployment for the three months ending in June, alongside a record annual growth in wages. Interest rate hikes since late 2021 have caused widespread economic challenges, particularly in the housing market, as commercial lenders have increased rates on home loans.
The CPI figures for July, while offering some respite, may not prevent the Bank of England from considering another rate hike in its late September meeting, where the monetary policy committee will deliberate on adjusting the current base rate of 5.25 percent.
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