UK Inflation Steady, But Labour Market Woes Loom

The UK's inflation rate remains steady, with July CPI coming in at 2.9% year-over-year, as expected by Continuum Economics. However, underlying inflation trends indicate a softer labour market and reduced wage growth.

This is evident from the weak labour market data this week, which should keep the Monetary Policy Committee (MPC) on hold for the remainder of 2026. Despite the steady inflation rate, the MPC is likely to maintain its current stance due to concerns about energy prices and their impact on inflation.

The UK's economy is also being influenced by external factors, particularly the Straits of Hormuz shipping crisis. Continuum Economics attaches a 60% probability to another ceasefire and deal, which would bring down energy prices in Q4 and help underlying inflation into 2027.