UK inflation rate falls for first time since Russia’s invasion of Ukraine to 6.8% in July

UK inflation has fallen to its weakest level since before Russia’s invasion of Ukraine, pushed down by energy bills falling after the lower price cap took effect in July.

Figures out this morning from the Office for National Statistics reveal the rate of price growth fell to 6.8 per cent last month, the lowest reading since February 2022 and down from 7.9 per cent in the previous month.

The number was in line with the City and the Bank of England’s expectations.

Jeremy Hunt, the chancellor, said: “The decisive action we’ve taken to tackle inflation is working, and the rate now stands at its lowest level since February last year. But while price rises are slowing, we’re not at the finish line. We must stick to our plan to halve inflation this year and get it back to the 2 per cent target as soon as possible.”

Headline inflation was pulled down by Ofgem, Britain’s energy watchdog, lowering the cap on typical annual household energy bills to £2,074 in July.

Food prices, while still rising quickly by historic standards, are easing, with the rate of grocery cost growth slimming to 14.8 per cent from 17.3 per cent on an annual basis in June. Slowing petrol price inflation also helped rein in the cost of living.

Russia’s invasion of Ukraine over a year ago roiled international food and energy markets, pushing up prices across the rich world. UK inflation peaked at 11.1 per cent in October.

There are signs that price pressures in the UK are proving resistant. The ONS said today core inflation, which removes volatile food and energy prices, held steady at 6.9 per cent.

Services inflation, which the Bank of England monitors closely to inform interest rate decisions, jumped to 7.4 per cent from 7.2 per cent.

City traders think Bank governor Andrew Bailey and the rest of the monetary policy committee will send interest rates to a peak of 6 per cent after wage numbers yesterday topped expectations.

Rate cuts are not expected until deep into next year to ensure prices are tamed, according to money markets.

UK families have been grappling with the worst cost of living crisis in generations, with pay growth being oustripped by inflation for around a year and a half.

However, living standards are beginning to recover. Separate figures released by the ONS yesterday revealed average pay excluding bonuses climbed 7.8 per cent, above July’s inflation rate, although the numbers measure different periods.

Rachel Reeves, the shadow chancellor, said that inflation in Britain “remains high, and higher than many other major economies”.

She said: “After 13 years of economic chaos and incompetence under the Conservatives, working people are worse off — with higher energy bills and prices in the shops.

“Labour’s plan to build a strong economy will make working people better off by boosting growth, improving living standards and cutting household bills.”

Neil Rudge, Head of Enterprise at Shawbrook, said “A slower increase in prices is good news for many and provides some reassurance for business owners that perhaps the economy is more stable than it has been. This newfound equilibrium is underscored by the latest CBI SME Trends Survey which reported stable sentiment for a second successive quarter. This may not seem significant on its own, but when looking at the latest UK GDP figures showing growth despite the sharp declines experienced in 2022 and the beginning of 2023, the outlook for the rest of the year appears to be growing increasingly positive. However, many businesses continue to face challenges. While SMEs remain resilient, business owners are diversifying their strategies and funding options. We’re seeing that many are keen to explore specialist finance solutions, such as asset-based lending, which may help to minimize fluctuations in finances, track a business’s growth, and ultimately offer more flexibility during uncertain times.

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UK inflation rate falls for first time since Russia’s invasion of Ukraine to 6.8% in July