UK Inflation Seen Picking Up in July, Driven by Services Costs
Seasonal price moves from airfares could add upside pressure to CPI
- CPI seen rising to 3.7% y/y in July - Hotels, food and airfares driving upside pressure - Goods discounting offers only modest relief - BoE expects inflation to ease by year-end
LONDON – UK households likely faced an acceleration in inflation last month, with economists expecting the latest Office for National Statistics data to show renewed upward pressure on prices.
The median forecast sees headline CPI rising 3.7% y/y in July, up a tenth from June. Core CPI, which excludes energy, food, alcohol and tobacco, is also projected at 3.7% y/y, unchanged on the month. On a monthly basis, headline prices are forecast to be flat after a 0.3% increase in June.
Services versus core goods
Deutsche Bank’s Sanjay Raja said summer seasonals would support inflation, particularly in services, with airfares and accommodation leading gains. “Admin/index-linked costs, in the form of non-private rents, will also rise in July. And food prices will continue to keep price momentum running above the Bank of England’s 2% mandate,” he wrote.
Services inflation is expected to reach 4.8% y/y, up a tenth from June, with base effects contributing to higher readings. Nomura highlighted the stickiness of service costs, warning that a slowdown will be required in the coming months to justify further BoE rate cuts. The bank also pointed to anecdotal evidence of hotel price surges during the Oasis reunion tour, with some reports citing increases of up to 400%.
By contrast, core goods are forecast to offset some of these pressures, with discounting in clothing and household items weighing on prices.
Rate path unclear
On 7 August, the Monetary Policy Committee cut rates by 25 basis points to 4.00% in what was seen as a hawkish move, citing progress in bringing inflation down. The Bank warned inflation could temporarily climb to 4% by September, driven by energy, food and regulated price increases, before falling back to target.
Nomura added that with the labour market softening and wage growth slowing, the focus will remain on services inflation. “Thus far it has proved sticky, notwithstanding April’s rise in administered prices,” analysts said.
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- CPI seen rising to 3.7% y/y in July
- Hotels, food and airfares driving upside pressure
- Goods discounting offers only modest relief
- BoE expects inflation to ease by year-end
By Harry Daniels
LiveSquawk News
@HarryDaniels71
19 August 2025 | 17:15 GMT
LONDON – UK households likely faced an acceleration in inflation last month, with economists expecting the latest Office for National Statistics data to show renewed upward pressure on prices.
The median forecast sees headline CPI rising 3.7% y/y in July, up a tenth from June. Core CPI, which excludes energy, food, alcohol and tobacco, is also projected at 3.7% y/y, unchanged on the month. On a monthly basis, headline prices are forecast to be flat after a 0.3% increase in June.
Deutsche Bank’s Sanjay Raja said summer seasonals would support inflation, particularly in services, with airfares and accommodation leading gains. “Admin/index-linked costs, in the form of non-private rents, will also rise in July. And food prices will continue to keep price momentum running above the Bank of England’s 2% mandate,” he wrote.
Services inflation is expected to reach 4.8% y/y, up a tenth from June, with base effects contributing to higher readings. Nomura highlighted the stickiness of service costs, warning that a slowdown will be required in the coming months to justify further BoE rate cuts. The bank also pointed to anecdotal evidence of hotel price surges during the Oasis reunion tour, with some reports citing increases of up to 400%.
By contrast, core goods are forecast to offset some of these pressures, with discounting in clothing and household items weighing on prices.
On 7 August, the Monetary Policy Committee cut rates by 25 basis points to 4.00% in what was seen as a hawkish move, citing progress in bringing inflation down. The Bank warned inflation could temporarily climb to 4% by September, driven by energy, food and regulated price increases, before falling back to target.
Nomura added that with the labour market softening and wage growth slowing, the focus will remain on services inflation. “Thus far it has proved sticky, notwithstanding April’s rise in administered prices,” analysts said.