UK Inflation Hits 2.9% as Food Prices Defy Expectations

The UK's inflation rate increased to 2.9% in July, driven by higher household energy bills and social rents. However, food prices remain remarkably stable, with prices flat on a monthly basis.

This is a welcome development for the Bank of England's hawks, who point to the influential role of food prices in setting household inflation expectations. Despite the rise in energy prices, there is little evidence so far that the war in Iran is having a tangible impact on inflation.

The Bank of England is expected to keep interest rates on hold this year before resuming rate cuts next spring, as inflation is likely to peak around 3.2% into next winter. This is well below the threshold for serious consideration of rate hikes, which is estimated at 4%.