UK CPI Inflation Stays Steady, But Underlying Trends Point to Lower Rates Ahead

The UK's July Consumer Price Index (CPI) was in line with expectations, with a year-over-year reading of 2.9%. The core inflation rate also came in above consensus at 2.6%.

However, the underlying inflation trend remains low due to weak labour market data and reduced wage growth in the private sector.

The UK's labour market has been softening, with a decline of 13k payrolled employees in July and an unemployment rate increasing to 4.9%. June average earnings excluding bonus came in at 3.5% year-over-year, but annual private sector regular earnings growth was down to 2.8%.

As a result, Continuum Economics expects CPI inflation to decline to 2.0% by the second half of 2027.