nflation is expected to fall by more than an entire percentage point when July figures are published later this week, with economists predicting the rate of price rises will fall to just 6.8%.
The decline would bring inflation to its lowest rate since February 2022, the month that Russia invaded Ukraine, sparking a surge in the price of oil, natural gas and wheat that turned inflation from a cause for concern to a crisis.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said: “Expectations this week amongst economists is that the July inflation rate, due to be published on Wednesday, will reveal a slower rate of inflation for the UK.”
However, the decline may not mean much relief for those worried about interest rates, as the main reason for the decline is the lower energy price cap coming into effect from July. The Bank of England pays closer attention to core inflation, which removes food and energy costs as these tend to be more volatile and depend on external factors.
That measure is expected to dip only slightly to 6.8%, after dipping from a 30-year high in June.
The inflation announcement wll cap off a week of major economic releases. On Friday, the latest GDP figures showed the UK economy grew in the second quarter of the year, defying expectations of stagnation. The continued resilience of the UK economy has been a positive story, but it also means that the Bank may choose to raise interest rates higher as it has more leeway to do so.
“While this can be viewed as positive for the UK, the potential need for the Bank of England to act further on interest rates is keeping a lid on any major gains for the pound,” analysts at Clear Treasury said. “This places added pressure on Wednesday’s release of inflation data here in the UK.”
The Bank is widely expected to raise interest rates further than the current 5.25%. Markets are currently pricing in a four-in-five chance that the Monetary Policy Committee raises rates for the 15th consecutive time when it meets next month. City traders see it as a roughly 50:50 chance whether rates peak at 5.75% or 6%.