UK Inflation Picks Up After July Surge in Household Energy Bills

• A jump in household energy bills pushed British inflation ​to a four-month high in July, matching forecasts, and it looks set to rise further as the war in Iran grinds ‌on with no end in sight. Annual consumer price inflation rose to 2.9% in July from a 15-month low of 2.6% in June, the Office for National Statistics said on Wednesday, reflecting a 13% rise last month in the maximum tariff British regulators allow energy firms to charge households.
• Inflation likely ​rose to 2.9% in July from 2.6% in June, further above the Bank of England’s (BoE's) 2% ⁠target, according to a separate Reuters poll ahead of official data due on Wednesday. But in its latest set ​of quarterly forecasts, the BoE expects inflation to rise above 3% later this year. Still, nearly 90% (56 of 64) of economists polled ​by Reuters expect the Monetary Policy Committee to leave rates unchanged at 3.75% this year, up from 83% last month. Six expected a hike by then, and another two forecast a cut. The poll was conducted August 13-18.
• The BoE is likely to be reassured by the absence of nasty surprises in Wednesday's data, and ​figures a day earlier showed a slightly cooler labour market, which may limit the lasting impact of inflation caused by the Iran war. The central bank was burned by the scale of price rises in 2022 after Russia's full-scale invasion of Ukraine, which, combined with a tight post-COVID job market, drove British inflation above 11%. U.S. President Donald Trump ​said on Tuesday that no talks were taking place with Iran and insisted the Strait of Hormuz was open, contradicting Iran's assertion that the critical ​waterway remained shut to shipping. Sterling and British government bond futures showed little immediate reaction to the inflation figures.
• Core ​inflation, which excludes the impact ⁠of energy and food prices, came in a little higher than expected at 2.6%, unchanged from June, rather than the 2.5% median Reuters poll prediction. Services inflation, closely watched by the BoE as a gauge of domestically generated price pressures, ​eased as the central bank and economists had expected, to 3.4% in July from 3.6%. Food and non-alcoholic drink ​price inflation, which economists ⁠had expected to surge after the start of the Iran war, cooled to 1.3%, an almost two-year low, adding to signs that fierce supermarket competition has helped to absorb the shock.

(Source: Reuters)