UK CPI Set for Bump as Energy Bills Fuel Inflation Rise

Tomorrow will bring significant economic data points in the UK, including the latest Consumer Price Index (CPI) figures for July. According to Victoria Scholar, head of investment at Interactive Investor, headline consumer price inflation is expected to jump from a 15-month low of 2.6% in the 12 months to June to around 2.9% in July.

The predicted rise in inflation is largely attributed to higher domestic energy bills after Ofgem's recent 13% increase in the energy price cap, which has reset sharply higher due to geopolitical turmoil in the Middle East and accompanying rises in wholesale gas prices.

Additionally, higher airfares over the busy summer travel season may add upward pressure on inflation. However, the government's Great British Summer Savings scheme will reduce VAT from 20% to 5% until September, which should offset some of these increases.

Scholar expects inflation to continue rising, peaking above 3% later this year as the UK economy grapples with elevated energy prices and the gridlock in the Strait of Hormuz. The Bank of England is likely to carry out a single 25 basis point hike by the end of the year to temper overheating and bring inflation back towards its 2% target.

Also on Wednesday, the Federal Open Market Committee (FOMC) will release their latest minutes.