Slower Services Inflation In UK Strengthens Case For More BoE Rate Cuts

(RTTNews) - UK consumer price inflation rose less than expected in July as services price growth slowed to its lowest in over two years, strengthening the call for more interest rate cuts from the Bank of England.

The consumer price index moved up 2.2 percent in July from a year ago, following June's 2.0 percent increase, the Office for National Statistics reported Wednesday. Although inflation accelerated for the first time since last December, this was slightly slower than economists' forecast of 2.3 percent and BoE's projection of 2.4 percent.

Services inflation, which is closely watched by policymakers for signs of persistent price pressures, eased to the lowest since mid-2022. Services prices grew 5.2 percent in July after a 5.7 percent gain. Meanwhile, prices of goods dropped 0.6 percent. The sharp deceleration in services price inflation will reassure the BoE that underlying inflation is fading and opens the door to more rate cuts later this year, said Capital Economics' economist Ruth Gregory. Early this month, the BoE had lowered its benchmark rate for the first time since March 2020. After lowering rate, BoE Governor Andrew Bailey said the bank need to be careful not to cut interest rates too quickly or by too much.

Month-on-month, consumer prices fell 0.2 percent, in contrast to the 0.1 percent rise in June.

Excluding energy, food, alcohol and tobacco, core inflation weakened more-than-expected to 3.3 percent from 3.5 percent in June. The rate was seen at 3.4 percent.

Another report from the ONS showed that factory gate inflation softened unexpectedly to 0.8 percent in July from 1.0 percent in June. Prices were forecast to climb 1.2 percent.

Month-on-month, output prices remained flat compared to June's 0.7 percent decrease. At the same time, input prices posted an annual growth of 0.4 percent after staying flat in June. On month, input prices slid 0.1 percent but slower than the 0.4 percent fall in June.

In a separate communiqué, the ONS said house price inflation held steady at 2.7 percent in June. This was the fourth consecutive month with an annual increase in prices, following eight months of annual falls in prices.