Key facts
- UK inflation increased to 2.9% in July, primarily due to higher energy bills.
- Core inflation held steady at 2.6%, with wage growth slowing.
- Fuel prices have seen a recent uptick after an earlier decrease.
- 10-year UK government bond yields have risen to 5.05%.
- Chancellor John Healey must consider increased borrowing costs for government support.
UK inflation rose to 2.9% in July, primarily driven by an increase in energy bills, signaling a significant challenge for Prime Minister Andy Burnham in managing the cost of living crisis. While fuel prices saw a temporary dip due to easing Middle East tensions, they have since risen again. Food prices have remained relatively stable but are expected to increase due to summer heatwaves and drought.
Despite the headline inflation figure, core inflation remained unchanged at 2.6%, and slowing wage growth suggests that broader inflationary pressures are not yet embedded in the economy. However, weak pay growth means consumers are feeling the full impact of rising prices, increasing calls for government intervention.
Chancellor John Healey faces a difficult balancing act as he considers energy support measures, with rising inflation contributing to higher borrowing costs. The yield on 10-year UK government bonds has surged to 5.05%, which could increase the Treasury's interest bill. The TUC has proposed a windfall tax on banks to fund energy support, a move the financial sector, including JP Morgan, is actively lobbying against.