UK Inflation Rises to Four-Month High on Energy Costs

LONDON, Aug 20 — UK inflation accelerated in July as household energy bills surged, pushing headline consumer price inflation to its highest level in four months. The Office for National Statistics (ONS) reported that annual CPI rose to 2.9% in July, up from 2.6% in June, matching forecasts and slightly above the Bank of England’s (BOE) projection of 2.8%.

The increase was largely driven by a 13% hike in the regulated energy price cap, which lifted household energy costs. Core inflation, however, remained stable at 2.6% year-on-year, while services inflation moderated slightly to 3.4% from 3.6% in June. Upstream cost pressures also showed signs of easing, with producer input inflation slowing to 4.9% from 7.4% and factory-gate inflation moderating to 3.1% from 3.5%, partly due to lower crude oil prices.

UK Inflation Rises

According to MBSB analysts, the higher headline inflation reinforces the case for the BOE to remain cautious. While easing services and producer-price pressures reduce the urgency for further tightening, energy-driven inflation could prove more persistent and trigger second-round effects.

The BOE is expected to keep its policy rate unchanged at 3.75% in September, maintaining a restrictive stance as inflation may temporarily rise above 3.0% later this year. Analysts warn that risks remain tilted towards a hawkish outlook, given the potential for energy-related pressures to sustain higher inflation levels.

The July data underscores the delicate balance facing policymakers: stabilising inflation without stifling growth, as households continue to grapple with rising energy costs amid geopolitical uncertainty linked to the ongoing war in Iran.

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