UK inflation eased to 6.8 per cent in July, down from <a href="https://www.thenationalnews.com/world/uk-news/2023/07/19/uk-inflation-beats-forecasts-to-fall-to-79-in-june/" target="_blank">7.9 per cent in the previous</a> month, according to figures from the Office for National Statistics. The <a href="https://www.thenationalnews.com/world/uk-news/2023/07/31/uk-food-inflation-drops-to-lowest-point-this-year/" target="_blank">figure was in line</a> with economists' expectations and may take some pressure off the Bank of England to raise interest rates by more than 0.25 per cent at its meeting in September. It is the lowest figure since February 2022. Falling gas and electricity prices provided the largest downward momentum to the inflation numbers, and although food prices rose in July, it was by less than in July last year, the ONS said. Downward pressure also came from the prices of milk, bread and cereals. Hotels and passenger transport by air were the largest upwards contributors to the overall inflation numbers. The ONS also found that on a monthly basis, inflation fell by 0.4 per cent in July, compared with a rise of 0.6 per cent in July last year. “While price rises are slowing, we’re not at the finish line. We must stick to our plan to halve inflation this year and get it back to the 2 per cent target as soon as possible,” UK Chancellor Jeremy Hunt said in response to the figures. However, some stickiness remains in the numbers. Core inflation, which excludes items such as energy, food and tobacco, rose by 6.9 per cent in the 12 months to July, which was unchanged from the June figure. Economists had predicted a fall in the core reading. Also, inflation within the services sector rose by 7.4 per cent, up from 7.2 per cent in June and equal with May, which was the highest rate since March 1992. Some analysts said the core figure combined with strong growth in average wages, in figures released on Tuesday, would still be of concern to the rate-setting Monetary Policy Committee at the Bank of England. Average UK wages, excluding bonuses, grew by 7.8 per cent in the April to June quarter, compared with a year earlier. The ONS said it was the highest annual growth rate since comparable records began in 2001. It was also the first time in a year that wage growth had outstripped prices. “With wage growth and services inflation both stronger than the Bank [of England] had expected, it seems clear that the Bank has more work to do,” said Ruth Gregory, economist at consultancy Capital Economics. The financial markets are now pricing in interest rates to be at 6 per cent by next February. Currently UK rates are 5.25 per cent. The pound gained slightly on the numbers, rising 0.2 per cent to $1.2731. The UK continues to struggle with inflation more than its peers in the G7, where the latest figures show 5.3 per cent in the euro area, 3.2 per cent in the United States and 3.3 per cent in Japan. Mortgage brokers were disappointed by the core inflation number and predicted an end to the home loan rate reductions that some of the UK's major lenders had announced in the past month. On Tuesday, Barclays, Nottingham Building Society and Yorkshire Building Society dropped rates by as much as 0.61 percentage points on residential fixed rate mortgages. The moves seem to have been in response to Santander announcing that it would be trimming the rates many of its mortgage offers by as much as 0.29 percentage points. “These are not the figures we were hoping for,” said Lewis Shaw, founder of Shaw Financial Services. “It's positive that headline inflation has fallen but core inflation has stayed the same and will spook bond markets, the Bank of England and mortgage lenders with just how sticky it is. “Expect more base rate rises starting with 50 basis points in September and more hikes until this inflationary tiger has been captured and put back in its cage. “Sadly this is the end of mortgage rate cuts for now.” Jamie Lennox at Dimora Mortgages said if lenders start to believe that the core inflation reading may prompt the Bank of England to announce larger than expected rate increases, mortgage rates could return to an upwards march. “If the markets also see this [core inflation] fuelling further increases, we could quickly see the price reductions we’ve seen in recent weeks on fixed rate mortgages being undone and back in a direction we don’t want to see.” Others were less pessimistic and preferred to concentrate on the fact that headline inflation is now at its lowest point in 15 months and looks set to come down further. “The worst may be over,” said Samuel Mather-Holgate, independent financial adviser at Murray Financial. “There was worry that core CPI may have risen slightly, but it remained at 6.9 per cent. This should give [Bank of England Governor] Andrew Bailey and his cronies plenty to mull over at the next policy meeting. “I wouldn't expect a further rate rise at the next meeting, and if the good news on inflation keeps coming, we could see rates slashed by the end of the year. “I expect to see lenders repricing mortgages over the next 48 hours and the price war for new business is set to continue.”