By Ed Frankl
The U.K.'s inflation rate fell a little more than expected in July, helped by cooling energy prices, though with the closely watched core rate holding steady, the pressure remains on the Bank of England as it considers another interest-rate hike next month.
Consumer prices were 6.8% higher in July than the same month a year earlier, easing from the 7.9% increase recorded in June, the Office for National Statistics said Wednesday. July's rate is the lowest since February 2022.
Economists polled by The Wall Street Journal expected inflation to decline to 6.9%.
But core inflation--a measure that excludes the volatile categories of food and energy--matched June's rate of 6.9% in July, compared with expectations that it would tick down slightly to 6.8%.
That keeps the pressure on the BOE, which is also contending with higher-than-expected U.K. wage growth, a factor that will concern policymakers as strong wage increases threaten attempts to control higher prices.
Regular wage growth, which excludes bonuses, rose 7.8% on year in the three months to June, the fastest rate since comparable records began in 2001, the ONS said Tuesday, suggesting U.K. wages are now growing faster than prices.
And despite the falling headline rate of inflation, it still remains much higher than the 2% target set by the central bank.
The BOE expects inflation to fall to around 5% by the end of 2023 and reach its 2% target by early 2025, according to forecasts it published earlier in August.
The central bank decides in September whether to raise its key rate beyond the current 5.25%.
Energy prices drove the headline rate of inflation downward, with electricity and gas prices 4.5% higher in July than at the same month last year, a considerable cooling from the 23.3% rate in June, the data showed.
Easing food prices also helped the headline inflation rate tick down, rising 14.9% in July, compared with 17.3% in June, though the level of price rises still remain high by historical standards.
With the summer travel season in full swing, hotels and air transport proved the highest upward driver to inflation, according to the ONS.
Inflation in the U.K. remains higher than many comparable nations. According to the European Union's preliminary harmonized measures for July, German inflation was at 6.5%, France at 5.0%, Italy at 6.4% and Spain at 2.1%. The eurozone as a whole had inflation at 5.3% in July, falling from 5.5% in June, while inflation in the U.S. was 3.2%.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
08-16-23 0315ET
