UK: Rise in inflation unlikely to last - ING

James Smith, Developed Markets Economist at ING, notes that UK’s headline CPI picked up to 2.5% in July, driven predominantly by the sharp rise in petrol prices through the second quarter.

Key Quotes

“But importantly, fuel costs have begun to stabilise, and the price of petrol, in fact, fell by 0.6% last month. Barring any further gyrations in oil prices, we think July’s figure represents a peak, and we expect CPI to begin trending downwards over the next few months gradually.”

“The impact of the pound’s post-Brexit plunge is continuing to fade – prices have more-or-less adjusted to the weaker level of sterling – and this is seeing core goods inflation slow. We expect this to keep core CPI close to 2% for the foreseeable future, although there’s a risk that this slips lower.”

“For the Bank of England, this is likely to be another argument to remain on the sidelines for the next few months, as Brexit uncertainty becomes an increasing concern.”