British Inflation Fell Last Month, But It Wasn’t All Good News

British Inflation Fell Last Month, But It Wasn’t All Good News
Paul Allison, CFA

3 months ago2 mins

What’s going on here?

British inflation dropped sharply in July, according to data out on Wednesday. But as always, the devil’s in the detail.

What does this mean?

July’s inflation rate clocked in at 6.8% versus the same time last year, a refreshing dip from June’s heated 7.9%. But hold off on the celebratory toasts for now. See, while the broader price landscape seems to be chilling out, there’s actually a bit of a ruckus beneath the calm. Core inflation – leaving out the ever-fickle food and energy prices – stubbornly stayed put at June’s 6.9%. Plus, the tab for services like hotels, dreamy holidays, and healthcare actually climbed by 7.4%, edging past June’s 7.2% rise. And the real kicker: if the perks of cheaper food and energy wane, and everything else keeps getting pricier, then inflation could regain its full momentum before long.

UK inflation
Source: Office for National Statistics

Why should I care?

For markets: Look after the pennies.

There’s been some good news for Brits this week too, though. Data out on Tuesday showed that wages climbed by a record-breaking 7.8% in the three months to the end of June – and you don’t need to be Alan Turing to calculate that that figure’s bigger than Wednesday’s headline inflation number. The upshot is that Brits have more actual cash in their pockets right now, for the first time in a long while.

UK wages

The bigger picture: A second wave.

Maybe, then, Brits should embrace the “live in the moment” mindset – but let’s be real, that’s not quite the British way. And while some might be humming a more optimistic tune now, a chorus of stern-faced economists is already hitting a different note. Their forecast: that today’s cooling inflation might just rear its head next year, in a seriously hard-hitting sequel. That might sound a tad gloomy – but in Britain, it never rains but it pours.



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