UK Inflation Set to Rise Amid Energy Price Surge

The UK's headline inflation rate is expected to rise to 3.1% in August, up from 2.9% in July, due to higher energy costs, according to a recent preview of the country's Consumer Price Index (CPI) data.

Despite this increase, there are no signs of second-round effects, such as rising wages or inflationary pressures spreading to other parts of the CPI basket. Food inflation remains contained, with producer price data suggesting it will continue to fall over the next few months.

The Bank of England (BoE) is expected to keep interest rates on hold at its upcoming meeting on September 17, given the benign labour market and weak demand conditions that prevent workers from pressing for higher wage claims. Private sector wage growth is forecast to slow further in the coming months, while public sector wage settlements will keep wage growth above 5%.

The BoE's Decision Maker Panel of CFOs also suggests that services inflation will remain around current levels, with firms reporting annual wage growth of 4.0% and expected year-ahead wage growth of 3.4% in the three months to August.