UK consumer price inflation accelerated in July, with the headline rate rising to 2.9% year-on-year — in line with expectations and up from 2.6% in June. Core CPI came in at 2.6%, slightly above the 2.5% forecast and unchanged from June's reading. Both measures remain above the Bank of England's 2% inflation target.

Key data:

• July CPI: +2.9% y/y (expected +2.9%; prior +2.6%)
• July core CPI: +2.6% y/y (expected +2.5%; prior +2.6%)

While the headline figure matched estimates, core annual inflation held steady at 2.6% in July, the same rate recorded in June. Core CPI strips out energy, food, alcohol and tobacco, which is why the pickup in regulated energy costs lifted the headline rate without feeding into the core measure.

The rise in the headline rate was driven mainly by higher energy prices, following a change in the Ofgem price cap in July. Households are estimated to be paying £221 more on average on their energy bills as a result. The cap is reset on a quarterly schedule, so changes in regulated tariffs pass through into headline CPI at regular intervals, with the next scheduled adjustment due in October.

Services inflation eased slightly to 3.4% in July, down from 3.6% in June. Services prices are a gauge Bank of England policymakers watch closely for domestically generated inflation pressure, as the category is less exposed to swings in global energy and commodity costs. The Office for National Statistics (ONS) attributes this month's easing largely to a smaller rise in air fares this year — up 11.7% between June and July 2026, compared with a 30.2% increase over the same period a year earlier. The ONS notes that the downward effect from air fares came almost entirely from European routes, where prices fell 4.3%, against a 38% rise in July 2025.

Food price inflation also eased in July, falling to 1.3% from 1.7% the previous month. Goods price inflation, however, moved back above 2%, with the July estimate at 2.2%, up from 1.7% in June. That stronger jump is what is keeping core prices sticky in the latest report.

Overall, the release is not seen as likely to push the Bank of England into any hasty policy actions in September, though it leaves the door open to a possible further move by year-end. Attention now turns to the remaining monthly data before those decisions, including the August CPI release and labour market figures, which the Monetary Policy Committee weighs alongside its quarterly forecasts.

GBP/USD was up 0.1% on the day at 1.3541, little changed following the report.

Source: ForexLive