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Economic growth

UK Inflation Gap with Eurozone Widest in Nearly Two Years

Strategic Insights

— 1 min read

Accelerating UK inflation has left a significant gap with Eurozone price growth, underscoring the challenging economic environment facing the Bank of England. The latest data from the Office for National Statistics shows that UK consumer prices rose by 3.8 per cent in the year to July, outpacing the Eurozone's 2 per cent inflation rate. This widening gap has significant implications for the UK's economic outlook and the Bank of England's monetary policy decisions.

Key Takeaways:

  • The 1.8 percentage point gap between UK and Eurozone inflation is the widest since September 2023.
  • UK consumer prices rose by 3.8 per cent in the year to July, driven by higher transport costs, food prices, and air fares.
  • The UK's labour market is showing signs of more persistent price growth, with wage growth proving stickier than in the Eurozone.
  • The Bank of England highlighted the gap between UK and Eurozone price growth, attributing it to factors such as food price rises, the increase in employer national insurance contributions, and the cost of incoming rules on packaging waste.
  • The UK's services inflation rate climbed to 5 per cent in July, up from 4.7 per cent in June, further underscoring the challenge facing the Bank of England.
  • The European Central Bank held its key rate at 2 per cent last month, while the Bank of England reduced its own rate to 4 per cent earlier this month.

Statistics:

  • UK consumer prices rose by 3.8 per cent in the year to July.
  • Eurozone inflation held steady at 2 per cent in July.
  • The 1.8 percentage point gap between UK and Eurozone inflation is the widest since September 2023.
  • Food and non-alcoholic beverage prices were up 4.9 per cent in the UK from the same period a year ago.
  • Germany's inflation rate was 1.8 per cent in July, while Italy's was 1.7 per cent and Spain's was 2.7 per cent.
  • CPI inflation in the US was 2.7 per cent in July, down from 2.9 per cent a year earlier.

Sources:

  • Office for National Statistics (ONS)
  • Eurostat
  • Investec Bank
  • Nomura
  • European Central Bank
  • Bank of England
  • Institute of Chartered Accountants in England and Wales (ICAEW)

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