UK inflation rises and there‘s more to come

Research evidence excerpt

First Insights

Global Markets Research

19 August 2026

Economics - Global

UK inflation rises and there’s more to come

Research Analysts

European Economics

George Buckley - NIplc

UK headline CPI inflation rose to 2.9% y-o-y in July, as expected by ourselves and

consensus. Service price inflation fell to 3.4%, which was also in line with Bank of

England forecasts. Core inflation remained unchanged at 2.6%, contrary to our and

consensus views of a fall.

This is unlikely the final word on rising inflation, with elevated energy prices likely to

put further upward pressure on inflation during the rest of the year. We think there are

upside risks to the BoE’s central projection for CPI inflation (3.2% y-o-y by year-end)

and we see a peak of around 3.5% y-o-y in CPI inflation in Q4 this year.

Josie Anderson - NIplc

Still, there are various reasons why we think second-round effects will be limited,

which explains our view of no rate hikes by the BoE (markets are pricing in one hike

in H2 this year and another in H1 2027). Those reasons include (versus 2022) a

weaker starting point for inflation ahead of the US/Iran war, a larger negative output

gap, a looser labour market and tighter monetary and fiscal policy.

Andrzej Szczepaniak - NIplc

Headline inflation rose as we and consensus expected

UK July CPI inflation was in line with consensus this morning – headline inflation rose to

2.9% from 2.6%, as we and consensus expected, which was a touch higher than the BoE

forecast of 2.8%. The rise was largely due to the higher Ofgem price cap coming into

effect – gas prices up nearly 15% m-o-m and electricity a more modest 3.6% (the impact

on the annual headline rate of inflation was exacerbated by the fact that there were

monthly falls in both in July last year).

Services inflation fell but core remained unchanged

Services inflation ticked down a couple of tenths to 3.4%, from 3.6% in June – which was

what we, consensus and the Bank of England had been expecting. Core inflation,

however, which strips out energy, food, alcohol and tobacco from the headline rate, didn’t

fall as we expected it would (it remained at 2.6% - consensus was looking for a 0.1pp fall,

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