UK inflation escalates beyond predicted levels
UK Services Sector Inflation Hits 18-Month High
The UK's services sector inflation rate reached an 18-month high of 3.8% in July 2021, according to data released by the Office for National Statistics (ONS) on Wednesday. This rate is higher than the overall inflation rate for the same month and also surpasses the June 2021 rate of 3.6%.
The UK now holds the highest inflation rate among the G7 nations, with the US and Eurozone inflation rates remaining at 2.7% and around 2% respectively. The services sector inflation rate in the UK increased from 4.7% in June 2021, with the transport sector, particularly air fares, being the largest contributor to the rise.
Furthermore, food and non-alcoholic beverages prices in the UK were 4.9% higher than a year ago in July 2021. These factors, along with regulated energy prices and a tight labor market post-Brexit, are contributing to the high inflation rate in the UK.
Martin Sartorius, chief economist at the Confederation of British Industry, stated that today's inflation data supports the cautious approach of the Bank of England's (BoE) monetary policy committee in future interest rate cuts. The BoE has hinted at a slower pace of future interest rate cuts due to persistent inflation, and the risk of second-round effects means the committee is unlikely to rush into easing monetary policy in the short term.
However, a decline in inflation is expected next year in the UK. Following the data release, the pound gained slightly in value, reflecting the markets' reaction to the higher-than-expected inflation rate.
The current Governor of the Bank of England, as of April 28, 2025, is Mark Carney. His role influences UK inflation through monetary policies such as interest rate adjustments and forward guidance to balance unemployment and growth, which affects inflation trends in the UK. However, specific effects on the current inflation state are not detailed in the available information.
Economists polled by Reuters had expected a smaller increase in the UK inflation rate for July 2021. The BoE has a particular focus on the inflation rate in the services sector, and this latest data will likely influence their future monetary policy decisions.
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