DAVY VIEW

UK inflation was lower than expected in July, driven by slower services inflation, which grew 5.2% in year-on-year (yoy) terms. This supports the view that disinflation is progressing and that recent upside surprises reflected temporary factors. After a narrow decision in favour of a rate cut on August 1st, the Bank of England (BoE) has emphasised the need for caution about further rate cuts. While services inflation remains high, two further rate cuts this year are more likely following today’s inflation print along with yesterday’s data showing slower average weekly wage growth.