Rumpled British Flag Next To Shattered Letters Spelling Inflation

Britain’s top-line inflation eased to 6.8 percent in July, the Office for National Statistics reported, sharply lower than June’s 7.9 percent.

However, core inflation—which ignores energy and food prices—remained stuck at June’s 6.9-percent pace, indicating inflation is still widespread throughout the British economy.

Inflation in services actually edged up to 7.4 percent, compared to 7.2 percent in June.

The job market is tight, forcing wages higher. Also, food and energy costs have failed to fall as much as expected this far into Russia’s war in Ukraine.

Those underlying pressures are likely to persuade the Bank of England (BoE) to raise its key interest rate for a 15th time in as many meetings when the governing committee meets late next month, analysts told The Wall Street Journal.

The rate now is 5.25 percent but futures markets have priced in a rate of 6 percent. That could be done in three quarter-point steps, meaning the bank could be raising its rates into next year.

By then, the European Central Bank and U.S. Federal Reserve are likely to have stopped jacking their rates, many analysts believe.

Inflation already has shrunk Britons’ real purchasing power by the most since the 1960s and sparked several strikes that have crippled public services, damaged GDP, and soured many voters on the Conservative Party ahead of next year’s election.

On taking office last October, prime minister Rishi Sunak pledged to drop inflation to 5 percent by 2024.

TREND FORECAST: The Bank of England can raise its interest rate but that will not solve the extra costs layered into the economy by Brexit or Western sanctions on Russia or the loss of Ukraine’s exports.

The likelihood that the U.K. enters a severe, prolonged recession continues to grow.

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