UK inflation rises ahead of central bank rate decision, narrowing the window for holding rates steady

The Bank of England will hold its Monetary Policy Committee (MPC) meeting on Thursday. Markets widely expect the Bank to hold its base interest rate unchanged at 3.75%. However, if energy-driven shocks continue pushing up inflation, markets have begun pricing in a possible rate hike as early as November. Following the release of the latest inflation data, traders’ implied probability of a rate hike this week fell from 35% to 25%, indicating that markets still see a strong likelihood the Bank will maintain its wait-and-see stance in the near term. Meanwhile, rising inflation is also increasing fiscal pressure on the government. UK government bond yields surged earlier, and have been estimated to have slashed the government’s fiscal headroom by more than half—further constraining policy flexibility ahead of the October budget. Energy prices drive inflation upward August’s acceleration in inflation was primarily driven by energy prices. The UK Office for National Statistics noted that sharp increases in petrol and diesel prices were the top contributor to the rise in the Consumer Price Index (CPI) that month; airfare prices and factory gate prices also contributed, while higher household energy bills provided further upward pressure. In early July, the UK energy regulator Ofgem raised the household energy price cap by 13%, directly lifting electricity and gas prices. At the same time, Brent crude oil has recently rebounded above $100 per barrel, and Ofgem has already announced plans to raise the energy price cap again in October—suggesting energy prices may continue supporting inflation over the coming months. David Rees, Schroders’ Global Head of Economics, said UK inflation could rise further over the next few months, as energy, industrial goods, and food prices continue passing through to end consumers. According to the Wall Street Journal, markets currently expect UK CPI to reach or exceed 4% early next year—twice the Bank of England’s 2% target. Core inflation remains stable, temporarily preserving room for the Bank to hold rates steady That said, rising headline inflation does not mean price pressures have broadened across the economy. In August, core inflation—excluding energy and food—held steady at 2.6%, and services inflation—a key focus for the Bank—remained stable at 3.4%. This suggests current inflationary pressures remain largely confined to external factors such as energy, rather than evolving into broader domestic price pressures. Francesco Pesole, ING strategist, stated there is “still no evidence of inflationary pressures spreading beyond energy,” lending support to the dovish stance within the Bank. A cooling labour market likewise provides some breathing room for the Bank to pause. Official data released Tuesday showed private-sector wage growth (excluding bonuses) for the three months to July edged down to 2.8% from 2.9% previously; overall weekly earnings rose just 2.9% year-on-year. David Rees noted that current wage trends have not yet reignited the wage-price spiral seen in 2022.

London property prices rose £9,272 in April alone | UK grocery inflation falls to a 30-month low | Prince Louis’s sixth birthday photos released

Follow Property News to see what major and minor stories made headlines today: ・ Rightmove data shows: London’s property market has fully rebounded, with house prices rising £9,272 in April alone. ・ According to the Financial Times, grocery inflation in the UK fell to a 30-month low of 3.2% over the four weeks ending mid-April. ・ Santander—the UK’s largest building societies—reports that nearly one-fifth of first-time buyers are now aged 40 or older, sometimes even older than 40. ・ As reported by the Financial Times, new data shows UK business activity grew faster than expected in April—the strongest pace since May last year. ・ On Prince Louis’s sixth birthday, photographs taken by Catherine, Princess of Wales, were released; the Royal Family thanked the public for “all the lovely messages.” 【London house prices rise】 Rightmove data shows: London’s property market has fully rebounded, with the average asking price for homes in London now standing at £696,120. Prices rose 1.4%—or £9,272—in April. Outer London boroughs saw the largest increases in asking prices: Merton rose 5.5% and Barnet rose 4.8%. A key driver behind the price rise is increased sales of larger properties. Matt Thompson, Sales Director at Chestertons, said: “Although buyer and seller numbers have risen so far in April, demand continues to outstrip supply—giving sellers the upper hand in price negotiations. Speculation about potential interest rate cuts in the coming months may boost buyer activity, which in turn could embolden sellers to push for higher asking prices.” 【Grocery inflation falls to a 30-month low】 According to the Financial Times, UK grocery inflation fell to a 30-month low of 3.2% over the four weeks ending mid-April—indicating some easing of the cost-of-living crisis that has affected millions of households since late 2021. Research firm Kantar reported that grocery price inflation dropped to 3.2% for the four weeks ending mid-April—down from 4.5% the previous month—and the lowest level since November 2021. A major factor behind this decline was a significant increase in retailer promotional spending: in April, promoted items accounted for 29.3% of supermarket sales—the highest share outside of the Christmas period since June 2021. Fraser McKevitt, Kantar’s Head of Retail and Consumer Insight, commented: “This heightened focus on discounts—combined with falling prices for certain categories such as toilet paper, butter, and milk—has helped bring down overall grocery prices.” 【Age of first-time mortgage borrowers rises】

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UK grocery inflation accelerates over last month, says Worldpanel

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