U.K. Inflation Eases to 6.8% as Energy Prices Fall

The News

Inflation in Britain rose last month at its slowest pace in more than a year, driven largely by a continued easing of rising food and energy costs. The price of services remained uncomfortably high, and wages have been climbing rapidly to catch up, increasing the odds that the Bank of England will continue to lift interest rates to curb inflation.

Consumer prices increased at an annual rate of 6.8 percent in July, down from 7.9 percent in June and a well below double-digit increases last autumn, Britain’s statistics agency reported Wednesday. Excluding food and energy costs, which tend to be volatile, so-called core inflation was unchanged from the month before at 6.9 percent.

Behind the Numbers: Slowdown reflects falling energy prices.

Inflation in Britain peaked in October at more than 11 percent, the highest rate in 30 years, after Russia’s war in Ukraine fanned a surge in energy and food prices.

Officials in Britain and Europe’s largest economies have worked to tame high energy costs, which jumped after Russian gas supplies were cut off. A move last month by Britain’s energy regulator to lower its price cap on household gas and electricity bills helped slow inflation.

Britain has also pressured food producers to rein in prices in grocery stores. Food prices in the U.K. rose 14.8 percent in July from a year earlier. That’s high, but down from 17.3 percent in June and a peak of 19 percent in April.

Context: Wages are rising quickly.

The slower inflationary pace was about what economists had expected. But it’s still high compared to the other European countries.

Inflation in the 20 countries that use the euro fell to 5.5 percent in June from 6.1 percent in May, extending a seven-month decline as the cost of fuel tumbled, with Germany the only country to report an increase.

Wages in Britain have been rising, as workers demand higher pay to offset rising prices and employers compete to fill jobs in a tight labor market. Wages grew 7.8 percent in the April-June period, the fastest annual rate since records began in 2001 the Office for National Statistics said Tuesday.

Together with lower inflation, “this means the position on people’s real pay is recovering,” the director of Britain’s economic statistics office, Darren Morgan, said.

What’s Next: The impact on interest rates.

Those higher wages are likely to worry policymakers at the Bank of England, who are already concerned that strong pay growth will fuel inflation even as it has started to come down.

The central bank has raised interest rates 14 times in a row to tame prices, warning that some risks from persistent inflation had “crystallized.” The bank’s benchmark rate is 5.25 percent, the highest level since February 2008.

The Bank of England next meets to set interest rates on Sept. 21.