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

Article by IG Chief Market Analyst Chris Beauchamp

UK Inflation Analysis

​​​UK inflation is expected to slow

​The latest figures from the Office for National Statistics (ONS) are expected to show that UK inflation is set to drop to its lowest level in over a year. In June, the rate of price growth is predicted to fall to 8.2%, down from 8.7% in May. This would be a reversal from previous expectations, as analysts had anticipated a decrease in the cost of living. However, it is worth noting that this figure is still higher than the Bank of England’s own forecast of 7.9% made in May.

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​Despite the overall drop in inflation, there are indications that underlying price pressures remain persistent. Core inflation, which excludes volatile food and energy prices and is considered a more accurate indicator of price dynamics, is forecasted to remain steady at 7.1% in June. Services inflation, an area closely watched by the central bank for informing its interest rate decisions, is also expected to remain high at around 7%.

​More rate hikes needed

​The sustained high levels of underlying inflation are likely to raise concerns among members of the Bank of England’s monetary policy committee. These levels suggest that price increases are being driven by local factors, which could put pressure on the central bank to continue raising interest rates. Analysts predict that the Bank may increase borrowing costs from the current level of 5% to a peak of approximately 6.25%.

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​It is worth noting that while underlying inflation remains a concern, headline consumer price inflation is expected to be brought down by softer petrol prices and lower energy bills. These factors will contribute to a decrease in overall inflation.

​In other news, the ONS is set to release figures on Friday that are likely to show a slight increase of 0.1% in retail sales for the month of June, attributed to the warmer weather. However, over the past year, retail sales have dropped by 1.5%.

​Overall, these figures suggest a complex economic landscape for the UK, with a drop in overall inflation, but persistent underlying price pressures that may necessitate further interest rate hikes by the Bank of England.