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6m agoJPMorgan warns rebound in UK inflation is 'warning shot for what could come next'
17m agoIntroduction: UK inflation increases in July, driven by pricier gas; oil prices rise again
The core rate of inflation, which strips out volatile items such as energy, food and alcohol, stayed at 2.6% in July, while economists had expected it to dip to 2.5%.
Scott Gardner, investment strategist at J.P. Morgan Personal Investing, described the rebound in UK headline inflation as a “warning shot for what could come next”. He explained:
UK headline inflation jumped in July as the Ofgem energy price cap rise hit household bills. The increase was expected but marks a clear reversal from previous months when the headline rate was falling. Until now, the spike in global energy prices had been felt the most among motorists when filling up their vehicles at the petrol pump. July data shows that the inflationary impact of the US-Iran war is spreading as rising energy costs feed through into higher household bills. As the situation in the Middle East remains uncertain, the continuation of elevated energy costs remains the largest challenge for consumers and businesses. Petrol prices have already risen 6.3% in August compared to the previous month and will show up in next month’s reading. Businesses are also facing higher input prices which are being passed on to buyers and could rise heading into the colder months later this year. Falls in services inflation and shop prices are helping to offset some of these pressures for now but the jury is out on whether this will last. While one data reading doesn’t always tell the whole story, this rebound in UK inflation is a warning shot for what could come next. We are keeping an eye out to see whether higher global energy prices have a knock-on effect for consumer goods prices, electronics and the wider artificial intelligence build out. This would have an impact on the UK economy and present a challenge for the Bank of England who are keen to avoid hiking rates. If goods inflation accelerates, then it will become difficult for BOE policymakers to maintain rates at the current level.
UK headline inflation jumped in July as the Ofgem energy price cap rise hit household bills. The increase was expected but marks a clear reversal from previous months when the headline rate was falling.
Until now, the spike in global energy prices had been felt the most among motorists when filling up their vehicles at the petrol pump. July data shows that the inflationary impact of the US-Iran war is spreading as rising energy costs feed through into higher household bills.
As the situation in the Middle East remains uncertain, the continuation of elevated energy costs remains the largest challenge for consumers and businesses. Petrol prices have already risen 6.3% in August compared to the previous month and will show up in next month’s reading. Businesses are also facing higher input prices which are being passed on to buyers and could rise heading into the colder months later this year. Falls in services inflation and shop prices are helping to offset some of these pressures for now but the jury is out on whether this will last.
While one data reading doesn’t always tell the whole story, this rebound in UK inflation is a warning shot for what could come next. We are keeping an eye out to see whether higher global energy prices have a knock-on effect for consumer goods prices, electronics and the wider artificial intelligence build out. This would have an impact on the UK economy and present a challenge for the Bank of England who are keen to avoid hiking rates. If goods inflation accelerates, then it will become difficult for BOE policymakers to maintain rates at the current level.
Good morning, and welcome to our rolling coverage of the global economy, the financial markets, the eurozone and business.
It’s UK inflation day!
Inflation picked up to 2.9% last month, mainly driven by higher gas prices.
The annual increase in the consumer prices index in July compares with a rate of 2.6% in June, according to the Office for National Statistics. City economists had forecast a rate of 2.9%.
Housing and household services, and furniture drove up the inflation rate while transport made the largest, partially offsetting, downward contribution, the statistics office said.
Within housing, higher gas prices were the main factor: Prices rose by 14.7% in July compared with a fall of 7.2% a year ago. Britain’s energy regulator changed the energy price cap, leading to higher standard variable tariffs, and estimated that for an average household paying by direct debit for dual fuel, this equated to an annual bill of £1,862, a rise of £221.
The increase was the largest rise in gas prices since October 2022, when UK consumers were first exposed to the higher prices arising from the energy crisis relating to Russia’s war in Ukraine. The price rise means that gas prices are at their highest level since March 2024.
The news comes after British consumers faced the sharpest summer increase in energy charges in four years in July as the US-Israel war on Iran sent shock waves through global energy markets.
However, separate official figures on Tuesday showing a slowdown in the jobs market – including a slowdown in private sector pay growth – may mean that the Bank of England won’t need to hike interest rates, according to economists.
Crude oil prices have risen this week as a ceasefire between the US and Iran expired on Monday, with Brent crude up 0.65% to $91.61 a barrel this morning.
In Asian stock markets, Japan’s Nikkei has slumped again, by 3.2%, following a chip sell-off on Wall Street. South Korea’s Kospi plunged 5.6% and China’s Shenzhen exchange lost 4.6%.
9.30am BST: UK Private rents and house prices for July
8.10am BST: European Central Bank president Christine Lagarde speaks
10am BST: Eurozone inflation final for July
7pm BST: US Federal Reserve minutes of last meeting
