UK Inflation: July’s CPI Softer-than-Expected but Higher than June

Figures released this morning indicate that UK inflation came in marginally below forecasts for July, with headline CPI rising from 2% in June to 2.2% in July.

While the print was below the general market consensus, it marks a departure from May and June’s print which marked the first time that inflation had fallen back in line with the Bank of England’s target since July 2021.

On a monthly basis prices fell 0.2% between June and July, marking a considerable slowdown from the last five prints which ranged from inflation rising 0.6% to 0.1%.

When excluding the volatile components of food and energy, core inflation also came in 10bps lower than forecast, hitting 3.3%. While this is a 0.2 percentage point drop from June’s figures, given that this is 1.3 percentage points above CPI, core inflation continues to cause a headache for policy makers.

That said, BoE policy makers will have taken some comfort in how services price inflation eased to its lowest level since June 2022 and below their forecasts of 5.6%. Nevertheless, with service price inflation still at 5.2%, the latest inflation figures further indicate that the central bank is not out of the woods yet when it comes to its fight against inflation.

Following the release of today’s inflation figures, money markets are pricing in around a 45% chance of a 0.25% September cut, and 90% chance of a cut by November.

Attention now turns to the BoE’s monetary policy committee meeting on 19 September.

As Ukraine’s incursion into Russian territory continues to penetrate further, a state of emergency has been declared in the Belgorod Oblast, making it the second such region to do so.

Ukraine is now thought to have captured more Russian territory in the last week than Russia has captured over the last eight months of fighting in Ukraine. Over this same period, it is estimated Moscow has lost tens of thousands of troops.

The declaration comes as Ukraine is understood to have taken an area spanning 1,000 square km across Russia’s Belgorod and Kursk Oblast, along with some 74 towns and villages. It is understood that the operation – consisting of several thousand Ukrainian troops – captured as much as 40sq km yesterday, as it now enters its second week.

Within this region lies the town of Sudzha, which represents a key ventricle for Russia’s gas-transit to Europe given that all gas flowing through Ukraine from Russia passes through there.

Speaking on Telegram, the governor of Belgorod Vyacheslav Gladkov said that “the situation in the Belgorod region continues to be extremely difficult and tense”. Gladkov also went further in calling for the “government to declare a federal emergency situation.”

Gladkov comments come as the Kursk Oblast has evacuated 100,000 residents.

With Russian President Vladimir Putin holding emergency meetings throughout the week, Ukraine’s incursion has caught Moscow completely by surprise. Indeed, its understood that Ukrainian commanders were told about the operation just three days before it began on 6 August.

Given the lack of defences and manpower across Russia’s Belgorod and Kursk Oblast region, Moscow has been forced to deploy troops there.

Following the release of this morning’s UK inflation print, attention will now turn to preliminary Eurozone GDP figures for Q2 released at 10:00. Here, markets are expecting output across the currency union to have increased 0.3% on a quarterly basis and 0.6% on an annual basis – broadly in line with previous figures.

This afternoon attention will turn to across the Atlantic with the release of US CPI figures at 13:30. With expectations of the Federal Reserve conducting a cut at their next September meeting, CPI inflation is expected to come in at 2.9% on an annual basis and 0.2% on a monthly basis.