The UK’s inflation rate fell year-on-year last month, from 7.9 percent in June to 6.8 percent in July. Inflation has not been this low since February 2022. The decline in inflation was in line with expectations, says Stephan Koopman, UK economist at Rabobank.
The decline in inflation is mainly due to lower energy prices. Other factors include lower food prices and lower prices for imports from Asia, according to Koopman. For example, core inflation, which excludes food and fuel prices, remained stable at 6.9 percent, the Office for National Statistics (ONS) reports.
Koopman finds that high prices in the country have spread, for example, to the service sector, such as the hairdresser. Wages also rose in the UK. This is due to inflation, which slows down the process of eventually reaching the desired inflation rate of 2 percent.
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The Bank of England raised interest rates again in early August by 25 basis points to 5.25 per cent. Koopman believes that even though inflation has fallen, interest rates will rise again, to 5.5 percent in September.
According to him, the British Central Bank will be keen to see how unemployment develops in the country in the coming period. “It’s been up a little bit in the last three months, and it’s probably going pretty fast.” He believes unemployment will be easier to monitor if the interest rate is fixed for a period of time.
The economist expects UK inflation to continue to drop “to around 5 percent by the end of this year”.
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