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UK CommentUK CPI inflation increases to 2.5% in July, slightly lower than the BoE expected

  1. CPI inflation up to 2.5% in July from 2.4% in June; core CPI inflation unchanged at 1.9%
  2. Headline inflation buoyed by energy price inflation
  3. Inflation to decelerate ahead
CPI inflation up to 2.5% in July from 2.4% in June; core CPI inflation unchanged at 1.9%
UK CPI inflation increased to 2.5 percent y-o-y in July from 2.4 percent in June. This was in line with the market consensus, while the Bank of England (BoE) had expected 2.6 percent. Core inflation was unchanged at 1.9 percent, as expected by the market. Headline inflation was buoyed by a rise in energy price inflation to 9.3 percent in July from 8.7 percent in June. Cost pressure seems to have picked up again from the end of Q1, but is still considerably lower than at its peak in January last year. In July, producer price inflation (PPI input) increased to 10.9 percent y-o-y, up from 10.3 percent in June. PPI output inflation, however, eased a bit to 3.1 percent in July from 3.3 percent in June.
Inflation to decelerate ahead
The PMI input price index fell somewhat again in July after having increased markedly from May to June. Based on past form, the PMI input price index suggests that cost pressures could stay around current levels in the very near term. The strengthening of the GBP up to April should still pull in the direction of lower CPI inflation, although cost pressures could keep it around current levels over the next couple of months. The BoE expects CPI inflation of 2.4 percent in both August and September. Further ahead, the BoE expects inflation to hover above 2 percent until the end of its forecast horizon in 2021. We believe lingering Brexit uncertainty will dampen GDP growth and wage growth and lead to inflation falling below 2 percent already next year.





Kari Due-Andresen

Chief Economist Norway

Norway and UK

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