UK inflation falls less than expected as transport costs rise

UK INFLATION remained higher than expected last month, adding to the case for the Bank of England (BOE) to raise interest rates again.

The consumer price index rose 6.8 per cent in July, slower than the 7.9 per cent increase the month before, the Office for National Statistics said on Wednesday (Aug 16). This exceeded the 6.7 per cent rate economists had expected, the fifth time in six months the figures surprised on the upside.

The core rate of inflation, excluding food and energy prices, held at 6.9 per cent in July, instead of ticking down as economists had expected. Energy and food helped bring the headline inflation rate lower, but transportation costs were rising.

Coupled with a record surge in wages reported on Tuesday, the figures strengthen the sense that Britain is suffering the worst inflationary spiral in the Group of Seven nations. Investors have revived speculation the BOE will deliver a quarter-point rate hike or more next month.

The pound extended gains after the release, rising 0.2 per cent to US$1.2731.

Britain has suffered the worst inflation in the Group of Seven since the start of the pandemic after an energy crisis that struck across Europe and the US. The latest inflation figures were 5.3 per cent in the euro area, 3.2 per cent in the US and 3.3 per cent in Japan. BLOOMBERG