UK CPI Preview – Will Rapid Price Growth Finally Abate?​​​

Article by Chris Beauchamp, Senior Market Analyst at IG

UK inflation analysis

United kingdom economic inflation It is expected to slow down

The latest figures from the Office for National Statistics (ONS) are expected to show that UK inflation is set to fall to its lowest level in over a year. In June, price growth is expected to slow to 8.2%, down from 8.7% in May. This will be a reversal from previous forecasts, as analysts expected a decrease in the cost of living. However, it should be noted that this figure is still higher than the Bank of England’s forecast of 7.9% in May.

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Despite the general decline in inflation, there are indications of continued underlying price pressures. Core inflation, which excludes volatile food and energy prices and is considered a more accurate indicator of price dynamics, is expected to hold steady at 7.1% in June. Services inflation, an area the central bank watches closely to inform its interest rate decisions, is also expected to remain elevated at around 7%.

More price increases are needed

Continued high levels of core inflation are likely to raise concerns among the Bank of England’s Monetary Policy Committee members. These levels indicate that price increases are being driven by domestic factors, which may put pressure on the central bank to continue raising interest rates. Analysts expect the bank to increase borrowing costs from the current level of 5% to a peak of approximately 6.25%.

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It should be noted that while core inflation remains a concern, headline consumer price inflation is expected to moderate due to lower gasoline prices and lower energy bills. These factors will contribute to lower headline inflation.

In other news, the Office for National Statistics is due to release figures on Friday that are likely to show a slight increase of 0.1% in retail sales for the month of June, due to warmer weather. However, over the past year, retail sales have fallen by 1.5%.

Overall, these numbers point to a complex economic landscape in the UK, with headline inflation low, but persistent underlying price pressures that may require further rate hikes by the Bank of England.