UK inflation rate fell but additional interest rate increases are anticipated.

At first impression, the UK is on the road to a more normal economic condition thanks to the sudden drop in inflation to 6.8%.

The underlying indicators of inflationary pressures across the economy, however, are no longer trending upward.

The decrease in domestic energy costs has led to a drop in the headline inflation rate for a second consecutive month.

However, the cost of goods and services rose once again, to 7.4%, which is a record high since 1992. As a result, core inflation, which excludes volatile inputs like food and energy, halted its downward trend and remained at 6.9%.

This number above illustrate the level of inflation that remains in the economy after the immediate effects of the energy shock have subsided.

The Bank of England pays special attention to core inflation rates. This collection of data raises the possibility of more rate increases in September and maybe October as well.

The worldwide comparisons reveal that even while inflation fell globally in the year leading up to July, the UK rate remained higher than similar nations. In July, core inflation declined in Germany, France, the EU as a whole, and the US, while it remained unchanged in the UK.

What is left is the impact of the peak in household energy bills caused by the implementation of the energy price cap, which set a cap on how much suppliers could charge per unit.

The cost of living problem still affects millions of people even if food price inflation has decreased but still remains extremely high at 14.8%. However, inflation has moved to areas of the economy where it usually does not decline as rapidly.

A narrative of three economies is emerging in the UK recovery. The most vulnerable households continue to feel the pinch from rising food and rent costs as well as energy costs

Homeowner households in the middle are feeling the pinch from rising rates and mortgage payments, but they are reducing their spending.

However, at the high end, substantial savings and cheap interest rates up until last year continue to bolster spending on leisure activities, travel, and eating out. Because of this, many businesses are raising their profit projections, while travel agencies and airlines are reporting strong revenue.

There will probably be more interest rate increases even though many millions of people are still feeling the effects of the cost of living issue. In certain sectors of the economy, demand is still strong.

(Sources: bbc.co.uk)