UK—Headline Inflation Close to Expectations in July

Economics Research 19 August 2026 | 9:43AM BST

UK—Headline Inflation Close to Expectations in July

BOTTOM LINE: This morning’s July CPI figures saw headline inflation rise to 2.86% James Moberly | (from 2.65%), close to our forecast and consensus but marginally above the Bank’s Goldman Sachs International estimate, as energy inflation rose on the back of an increase in the Ofgem price cap. Core inflation was little changed at 2.58%, in line with our forecast but a tenth ahead of consensus, as a rise in core goods inflation offset a decline in services inflation. The drop in services inflation resulted from airfares rising by less than a year ago, while underlying services inflation measures increased. Food inflation continued to decelerate, with the PPI data also showing continued softness in food products output price inflation. Headline inflation is likely to rise at the next print on the back of the recent rebound in petrol and diesel prices, before rising further to reach 3.3% in Q4.

Services CPI (July): 3.45% (rounding to 3.4%); GS: 3.41%; BoE: 3.36%; Cons: 3.4%; Previous (June): 3.58%, all %yoy

Core CPI (July): 2.58%; GS: 2.58%; BoE: 2.55%; Cons: 2.5%; Previous (June): 2.57%, all %yoy

CPI (July): 2.86%; GS: 2.88%; BoE: 2.81%; Cons: 2.9%; Previous (June): 2.65%, all %yoy

RPI (July): 3.2%; Cons: 3.3%; Previous (June): 3.0%, all %yoy

1. This morning’s July CPI figures saw headline inflation rise to 2.86% (from 2.65%), close to our forecast of 2.88% and consensus of 2.9%, but marginally above the Bank’s estimate of 2.81%.

2. Services inflation dropped to 3.45% (from 3.58%), 4bp ahead of our forecast of 3.41%. Airfares rose less than we had expected, while recreational and cultural services and maintenance and repairs prices were slightly firmer. Our estimate of services inflation excluding volatile items, regulated components, rents and package holidays and our estimate of trimmed mean services inflation both increased to 3.8% (from 3.6%).

3. Core goods inflation rose to 0.93% (from 0.72%), albeit this was a tenth lower than our forecast. Clothing inflation rebounded after discounting in June and prices of personal computers and tablets increased. Overall, core inflation was little changed at 2.58% (versus 2.57% in June), in line with our estimate and close to the BoE’s forecast but slightly firmer than consensus.

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4. Energy inflation rose to 9.83% (from 5.72%) – close to our forecast – on the back of base effects and a 13% increase in the Ofgem price cap. As expected, there was some partial offset from lower road fuel prices. Food, alcohol, and tobacco inflation dropped to 1.59% (from 1.78%), slightly below our estimate. The PPI data showed a further slight deceleration in food products output price inflation.

5. Headline inflation is likely to rise at the next print on the back of the recent rebound in petrol and diesel prices, before rising further to reach 3.3% in Q4. We continue to forecast a notable deceleration in headline inflation in 2027 given limited signs of second-round effects and our strategists’ forecast for declining energy prices.

Exhibit 1: Sequential Seasonally Adjusted Inflation Rates Seasonally Adjusted Month-on-Month Inflation Food, Core Date Services Alcohol, Energy Core Headline Goods Tobacco Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul-

Source: Goldman Sachs Global Investment Research, Haver Analytics

Exhibit 2: Underlying Services Inflation Measures

Source: Goldman Sachs Global Investment Research