UK Inflation Peaks Near 3%, Energy Prices Pose Risk
UK inflation data for July showed headline Consumer Price Index (CPI) rising to 2.9% year-over-year, while core CPI stayed at 2.6%. The increase was driven by energy price hikes due to the Ofgem Price Cap and base effects, according to Deutsche Bank's Chief UK Economist Sanjay Raja.
Raja notes that despite some good news, such as food price inflation dropping to its lowest rate since late 2021 and services CPI falling to its lowest in three months, further upside to inflation is likely. Energy prices are poised to rise further, and services inflation will also edge up.
The MPC will face some unease due to the Bank's core services measures ticking up, highlighting price momentum concerns. Energy inflation remains volatile with ongoing tensions in the Middle East, and further rises in the Ofgem Price Cap cannot be ruled out.