GBP: UK headline inflation continues to fall but not as fast as some had hoped

As IGTV’s Jeremy Naylor explains the numbers were not as low as some economists had hoped for although the majority expected them at or near where they fell. That drop in the headline rate was driven by a reduction in the energy price cap and the cost of food rising less rapidly. But UK inflation remains stubbornly high overall compared to many other nations and well above the Bank of England's target rate of 2%, so another rate rise of 25-basis points is widely expected when the next decision hits the markets on Thursday 21 September.

(Video Transcript)

UK headline inflation

Now, UK headline inflation is still falling, but not as fast as some economists had been expecting. Let's take a look at the numbers that we've seen out this morning, not just the consumer prices, but producer prices and retail prices as well. The headline consumer price index rising 6.8% in July year-on-year. That was pretty much in line with expectations, down from 7.9% in June.

Some economists had been looking for 6.7%. Core inflation 6.9% in July, the same as it was in June. But that headline rate continues that downward trend as the rate of price rises continues to soften.

This is driven by a reduction in the energy price cap and the cost of food rising less rapidly. But UK inflation broadly remains stubbornly high overall compared to many other economies, and well above the Bank of England's target rate of 2%. Producer prices, that fell 0.8% in July, very strong numbers this time last year. Expectations have been for a drop of 1.3%.

Retail price index

The retail price index up 9% in July year-on-year, in line with expectations. The significance of retail prices is that a lot of the government's benchmarking is around this. I mean, if you pay for rail fares, they always seem to benchmark it against retail prices. So it is still important. And I think it also has a lot to do as well for younger people who have debts around education, their benchmark to retail prices. So that is still a significant part of the readings that we have, and the burden that people have to take on board.

GBP/USD

Let's take a look at what's happening with sterling. Sterling is up today against the US dollar, currently trading at 127.28. If I show you what's been happening in a 10-minute candle chart, you can see here that this market has risen. And I think the point is here that the interest rates rise that many have been looking for a quarter of a percentage point at the next Bank of England meeting is absolutely still on. And that's what people should expect. And this is why we've seen sterling rise.

Sterling is also up, but not by the same sort of degree against the euro in today's session. It's just a smaller green candle. But nonetheless, it is up.

And continuation of yesterday's trade above the 50-period moving average, currently trading at 116.52. The next move up has got a price ceiling here at the highs we saw back on the 11th of July at 117.59. So inflation still very much alive, and the Bank of England is likely to respond at its next meeting by another quarter point rise in base rate.