
The CPI, the Office for National Statistics’ (ONS) headline measure of annual inflation, stood at 6.8% in July, down from 7.9% in the previous month.
The fall by 1.1 percentage points in the CPI brings inflation to its lowest level in 15 months. Month-on-month, the ONS recorded a 0.4% fall in prices overall between June and July 2023.
The drop in the rate of price rises was largely driven by slowing inflation across a range of physical goods in the ONS’ shopping basket of product categories used to monitor changing prices. Food and drink prices, one of the main drivers in inflation over the past year, continued to see a slowdown in the rate of price increases, averaging 14.9% more expensive than in July last year, but down from last month’s figure of 17.4%. Transport, meanwhile, was the only category of products to see prices fall compared to July 2022, with petrol and diesel prices at the pump now around 50p lower than 12 months ago.
Prices are now rising faster, however, in the services sector, with hospitality, air travel and housing costs, particularly in the private rented sector, keeping inflation high. The UK is also continuing to see higher inflation than in comparable economies, although this gap is now beginning to close: Germany is estimated to have seen 6.5% inflation in July; and France, 5.0%.
Despite the fall in the headline rate of inflation, it continues to persist well above the Bank of England’s 2% target rate. As a result, the Bank of England is expected to continue to increase interest rates, with its economists having projected that above-target inflation is likely to continue through to early 2025 and higher interest rates, capping out at around 6%, will be the norm.