UK inflation rises below expectations in July

Inflation in Great Britain rose to 2.2% in July after holding two months at the BoE’s 2% target, rising less than economists expected.
Services inflation, closely watched by the Britain’s central bank, fell to 5.2%, last month (the lowest in 25 months) from June’s 5.7% and strongly missed forecast for 5.5% rise.
Lower than expected July numbers provided fresh support to those advocating for further rate cuts and pushed British pound 0.35% down vs US dollar in immediate reaction to data.
The Bank of England cut interest rates from the multi-year high at 5.25% earlier this month and said that 2% readings in past two months was probably the bottom, expecting inflation to start rising and hit around 2.7% by the end of the year.
The policymakers point to fading effects of sharp fall in energy prices in 2023 as a main generator of inflation in coming months and expect consumer prices to stay elevated before returning to 2% in the first half of 2026.
The BoE will continue to closely watch longer term inflation pressures, as the economic impact from long-lasting war in Ukraine will likely continue to fuel inflation, in addition to other key factors, such as wage growth, which is still almost double the rate the BoE sees consistent with inflation holding at 2%.