UK inflation rate will rise again

Amid market expectations that the Bank of England will raise overall interest rates for the first time this year, the Bank of England may face setbacks in its fight to curb high inflation, highlighting the pressure brought about by the cost of living crisis. Official data released by the UK is expected to show that inflation rate rebounded above the Bank of England's target of 2% in July, partly due to rapid increases in airfare, vacation packages, and hotel prices. The city's economists said that the overall inflation rate is expected to rise to 2.3%, after maintaining the target level of 2% for two consecutive months in May and June, which will be the first increase since December 2023.

Firstly, urban analysts believe that the price growth rate in July rose to 2.3%, while the price growth rate in the previous two months remained stable at 2%, which is in line with the central bank's target. The latest data will demonstrate how the economy performed in the first month of Labour's rule, and the National Bureau of Statistics will also provide the latest data on economic growth rate, labor market conditions, and retail sales. It is expected that the gross domestic product will grow by 0.2% in June, and the quarterly growth rate will reach 0.7%, which is the same as the previous three months and the largest increase among G7 wealthy countries. The consulting firm stated that its output index grew at the fastest pace in two years in July, driven by the manufacturing industry and the peak summer tourism season.

Secondly, former UK Prime Minister Kyle Stammer has pledged to increase the economic growth rate to 2.5% in the long term, making the UK the fastest-growing economy among the G7 countries. However, analysts are skeptical about the possibility of achieving this goal without significantly increasing investment. Since the start of the European Football Championship, the booming development of the hotel industry is likely to be a supporting factor for economic growth in June, according to a Barclays report, which has driven an increase in bar spending.

On the other hand, unfavorable factors compared to last year's energy prices will lead to an overall increase in inflation rate in July. Deutsche Bank's Chief UK Economist stated that the positive base effect mainly from energy prices may push up the overall inflation rate in the second half of 2024. But there is also good news. The inflation rate in the service industry will continue to decline, albeit at a slow pace. The inflation rate of the service industry in June was 5.7%, and the central bank closely monitored this inflation rate when deciding whether to cut interest rates. At this month's interest rate setting committee meeting, the central bank lowered the benchmark interest rate by a quarter of a percentage point to 5%. The central bank stated that it now places more emphasis on the overall trend of the economy rather than a single indicator.

The release of international economic data may also trigger severe fluctuations in the stock market. Last week, stock prices in Asia, Europe, and the United States fluctuated significantly. Previously, data showed that the US economy only added 117000 jobs in July, a significant slowdown from June and far below Wall Street analysts' predictions, raising concerns about an economic recession.

In addition, analysts say that although service price inflation is slowing down, the price increase in the dominant industry of the UK economy, driven by airfare, vacation packages, and hotel prices, is still expected to remain above 5%. Previously, the overnight accommodation price rose sharply this year, partly reflecting the new seasonal model since the lifting of the blockade of the COVID-19 epidemic, and the hotel took surge pricing measures to cope with the growth of demand.

Overall, it is necessary to ensure that the inflation rate remains low and be careful not to cut interest rates too quickly or too much. Ensuring low and stable inflation rates is our best practice to support economic growth and national prosperity. The Bank of England will decide in September whether to cut interest rates again, but the market generally expects the Bank of England to temporarily maintain interest rates at current levels.