UK inflation falls to 17-month low of 6.8% but unlikely to derail another interest rate rise

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The rate of inflation in the U.K. fell sharply in July to a 17-month low largely on the back of lower energy prices

LONDON — The rate of inflation in the U.K. fell sharply in July to a 17-month low largely on the back of lower energy prices, official figures showed Wednesday, a welcome development for hard-pressed households struggling during the cost of living crisis.

The Office for National Statistics said the annual rate of inflation, as measured by the consumer price index, was 6.8% in July, its lowest level since February 2022, the month Russia invaded Ukraine and sent energy prices surging.

The decline from June's 7.9% rate was in line with economists' expectations.

The statistics agency said the fall was largely driven by lower energy prices as last year's sharp increases fell out of the annual comparison. It said that food price inflation, which also spiked sharply in the wake of Russia's invasion of Ukraine, eased too.

Though the decline in the headline rate of inflation will be welcome news for hard-pressed households, it's unlikely to derail market expectations that the Bank of England will raise interest rates again next month, especially as wages are rising at a record high. Wednesday's figures also showed that the core rate of inflation, which strips out volatile items such as energy and food, remains high.

Earlier this month, the bank, which is tasked with achieving a 2% inflation rate, raised its benchmark interest rate to a fresh 15-year high of 5.25% and hinted that it would stay high for some time to bring down persistently high inflation.

Higher interest rates help dampen inflation by making it more expensive for consumers and businesses to borrow to buy homes, cars or equipment.

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