UK inflation picks up to hotter-than-expected 3.8% in July
Economists polled by Reuters had anticipated inflation would reach 3.7% in the twelve months to July, after it picked up to 3.6% in June, exceeding forecasts.
July core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose by an annual 3.8%, up from 3.7% in the twelve months to June.
The latest data comes after the Bank of England earlier this month voted by a fine margin to cut interest rates from 4.25% to 4%, as the central bank resumed what it describes as a "gradual and careful" approach to monetary easing.
While the BOE was widely expected to trim rates by 25 basis points at the time, traders and economists were keen to see the breakdown of support for the move. In the end, policymakers had to vote twice on the rate cut decision, and a majority of 5-4 opted to cut.
BOE policy committee members have had to weigh up sticky inflation with a cooling jobs market and lackluster but slightly recovering growth. GDP data out last week showed a surprise 0.3% expansion in the second quarter.
The BOE is watching inflation data closely, after forecasting the consumer price index will peak at 3.8% in September before retreating in the early half of 2026.
In Deutsche Bank's estimates, Britain remains "a sliver away" from an annual inflation rate of 4%.
"We expect price pressures to soften in the fourth quarter of 2025, however, tracking closer to 3.5% y-o-y [year-on-year] by year-end," Sanjay Raja, senior economist at the German lender, said in emailed comments Friday.
"Moreover, we do expect price pressures to ease further next year. On our models, we have headline CPI slipping to just around 2.75% y-o-y in the second quarter of 2026, before landing closer to 2.25% y-o-y in the fourth quarter of 2026. Bigger picture, we think the road to achieving a 2% landing next year is narrowing. Indeed, we see more upside pressures building around our projections," he noted.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
5 hours ago
- Yahoo
UK Inflation Shocker: Why the BOE's Rate Cuts May Be Off the Table
This article first appeared on GuruFocus. While inflation has cooled across much of the developed world, the UK is proving stubborn. Consumer prices jumped 3.8% year-on-year in July and are expected to breach 4% by Septemberdouble the Bank of England's 2% target. The BOE has already slashed interest rates five times, trimming them to 4% from last year's 5.25% peak. But that hasn't been enough to rein in prices. Core drivers? Surging energy bills, labor costs, and a 26 billion payroll tax rolled out in Aprilall of which are pushing up input costs for businesses, many of whom are passing them on. Warning! GuruFocus has detected 5 Warning Signs with NVDA. Underneath the surface, the structural headwinds look even more problematic. UK productivity shrank 1% in Q2 compared to last year, putting the country behind most of its G7 peers. Add in lingering Brexit-related trade frictions and food prices that are now nearly 40% higher than pre-pandemic levels, and it becomes harder to argue this is just a cyclical inflation blip. Some pressures, like the summer airfare spike, may prove temporarybut the BOE remains on edge about second-round effects as workers continue to seek higher pay to shield themselves from the cost-of-living squeeze. Markets still expect a cut to 3.75% in November, but the BOE may hold back if wage growth doesn't cool as expected. For investors, this means uncertainty lingersparticularly for UK-linked consumer names and housing-sensitive sectors. Even global players like Tesla (NASDAQ:TSLA), which has exposure to the UK market, could feel ripple effects if inflation stays sticky and rate cuts get delayed. The BOE isn't calling the peak yetand neither should the market.
Yahoo
5 hours ago
- Yahoo
N26 co-founder Valentin Stalf to step down
This story was originally published on Banking Dive. To receive daily news and insights, subscribe to our free daily Banking Dive newsletter. N26 co-founder Valentin Stalf will step down as co-CEO and move to a role on the German digital bank's supervisory board after a transition period, the company announced Tuesday. That leaves Stalf's fellow co-founder, Max Tayenthal, as N26's sole CEO for the moment, though the digital bank's chair, Marcus Mosen, may be appointed interim co-CEO soon, the Financial Times reported last week. The executive shuffle comes as German financial watchdog BaFin last month proposed issuing a formal warning to two members of the bank's management board and appointing a special monitor after finding new risk management weaknesses, according to the Financial Times. The potential development arises little more than a year after BaFin lifted a cap it had put on N26's growth. The nearly three-year cap cost the digital bank billions in lost valuation, including a shutdown of its U.S. operations in 2021. Stalf's shift comes amid reports that he and Tayenthal may waive special voting rights that give them veto power over certain decisions. Stalf and Tayenthal together hold a roughly 20% stake in the company. U.K.-based fintech Wise, similarly, last month held its own referendum on investors who hold so-called 'golden share' supervoting powers. Stalf, in a statement Tuesday, called his move 'a forward-looking decision to continue to best utilize my many years of experience and knowledge to strengthen N26.' 'I will actively and passionately contribute to N26's long-term leadership and strategic direction and will remain one of the largest N26 shareholders,' he said. 'The new role also offers me the opportunity to devote more time to my family office and other entrepreneurial pursuits.' Stalf told the Financial Times he had been thinking about leaving the company's management 'for some time' and expedited the transition after rumors of his potential departure last week. He added he expects to join the supervisory board after roughly six months. Stalf further said he expected two more executives to join the management board 'over the coming six to 12 months' but declined to detail potential future management changes. A person familiar with discussions at N26 told the Financial Times that Tayenthal was likely to step down from his role at a later stage. The digital bank, however, said Tayenthal 'remains fully committed to his role.' Mosen, for his part, called Stalf 'a pioneer in mobile banking.' 'I have tremendous respect for his entrepreneurial vision and achievements,' Mosen said in a Tuesday release. 'Together with Max, he has turned N26 into an industry frontrunner and market-leading digital bank known across Europe. I look forward to continuing our cooperation." N26 broke even last summer, it said, adding it delivered 40% revenue growth in its past financial year and annual revenues now exceeding €500 million. The digital bank is preparing to introduce products for families, including a child's account, card and investment functionality; a new premium subscription with exclusive partners; and an all-new app design focused on holistic wealth management, it said. On the risk management front, the company's pending chief risk officer, Jochen Klöpper, is set to start in December. Recommended Reading Goldman's global banking and markets co-chief to leave bank Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
7 hours ago
- Yahoo
Analysis-UK inflation heat puts Bank of England back in the spotlight
By William Schomberg and David Milliken LONDON (Reuters) -British inflation looks set to hit 4% next month, double the Bank of England's target and a level likely to add to nervousness at the central bank about the risk of price growth getting stuck at a stubbornly high rate. Consumer prices climbed by 3.8% in July, data showed on Wednesday, the fastest annual rise for a Group of Seven economy and approaching the BoE's forecast of a 4% peak in September. While below the four-decade high of 11.1% reached in October 2022, when energy prices were surging after Russia's invasion of Ukraine, July's reading was the strongest in 18 months. By comparison, U.S. inflation held at 2.7% in July and in the euro zone it is expected to stay around 2%. British inflation has been above the BoE's 2% target almost constantly since May 2021. Little wonder then that the central bank - which saw its standing fall in the eyes of the public when inflation jumped in 2022 - has suggested that its already gradual run of interest rate reductions might slow, even with the jobs market weakening. That would be a blow to Prime Minister Keir Starmer and finance minister Rachel Reeves who are seeking to speed up Britain's slow-moving economy. They have pointed to the five rate cuts since they came into office as a sign of progress. The BoE's quarter-point cut to its benchmark rate on August 7 was opposed by almost half of its monetary policymakers. One of them, Catherine Mann, pointed in March to research in the United States showing that public attentiveness to inflation doubles when price growth hits 4%. The research, by Oliver Pfaeuti, a University of Texas assistant professor, found the increased U.S. public awareness of inflation "substantially amplified the already inflationary supply shocks and rendered inflation more persistent". Thomas Pugh, chief economist at accountancy firm RSM UK, said inflation at 4% was probably not an automatic trigger for long-lasting economic damage but "there is some pretty good evidence that consumers and businesses are paying a lot more attention to inflation". He noted that September's data would be used to set rail fares and student loan repayments and by some pension schemes. "There is a genuine risk of some higher inflation becoming baked into the system," Pugh said. Many businesses are caught between the burden of rising costs and the risk of losing customers also under strain. Steve Hardeman, managing director of Clevedon Fasteners, which makes rivets and other parts for construction and engineering firms, said his firm had raised prices around five times since 2022 in response to higher electricity bills and labour costs. "We're looking at increasing our prices again because of things that are coming down the line," he said. Nimisha Raja, founder of food manufacturer Nim's, said she had seen a lot of "opportunistic" price rises. She pushed back when one supplier sought to raise the price of courgettes by another 5% after a 30% increase earlier this year. "I said we can't afford to do that because we can't pass this cost on to our customers. And they did back down." BANK OF ENGLAND ON ALERT The BoE has become increasingly alert to the risk of inflation getting stuck too high. But it is counting on a gradual deceleration in wage growth to continue. At around 5% a year, it is down from almost 8% two years ago but remains far above the 3% level that the BoE thinks is consistent with its 2% inflation target. Despite a slowdown in payrolls numbers, some employers are still scrambling to retain staff. The British arm of German supermarket Lidl said last week it would give workers a fifth pay rise in two years, matching an increase at rival Aldi. Many other firms are taking a more cautious approach. Private-sector pay settlements held at 3% in the three months to July and uncertainty about the economy suggest further caution ahead, data firm Brightmine said on Wednesday. Inflation hitting 4% in September was unlikely to affect pay settlements for early 2026, Sheila Attwood, HR insights and data lead at Brightmine, said. But if inflation holds around 4% in the following months, that could have an impact in the spring, she said. The head of a major trade union group responded to Wednesday's inflation figures by saying workers needed immediate pay rises. "The time for action is now," Unite general secretary Sharon Graham said. The BoE has forecast inflation to slow to 3.6% in December and average 2.5% over 2026 before returning to 2% only in the second quarter of 2027. However, the central bank said the risk of higher-than-expected inflationary pressures had risen. Robert Wood, chief UK economist at Pantheon Macroeconomics, expects inflation to be higher than the BoE does at 2.7% in 2026 and close to 2.5% in 2027, in part because he assumes finance minister Reeves will end a car fuel duty freeze and may resort to other tax hikes to stay on track for her budget targets. Wood predicts the BoE has now reached the end of its rate-cutting cycle. For now, however, most economists think the jobs market slowdown will allow for borrowing costs to be lowered further. A Reuters poll of analysts showed most expect a rate cut in November and another in early 2026. "There is always a risk that wages react to higher inflation, but at least this is not 2021," Philip Shaw, chief economist at Investec, said, pointing to a rise in unemployment, more people entering the workforce and no energy price surge. "It may be an environment where the Monetary Policy Committee chooses to be cautious but the labour market currently looks too weak to pose a major, medium-term inflationary threat." (Writing by William Schomberg; Editing by Toby Chopra) Connectez-vous pour accéder à votre portefeuille
