DAVY VIEW

This morning’s UK CPI inflation release has taken markets by surprise, falling to 2.0% in July from 2.5% in June. This looks like a blip, related to base effects and a methodological change implemented by the ONS for items unavailable for sale during lockdown. CPI inflation should still accelerate towards 4% in the final months of 2021. That input/output price inflation is still running at 10% and 5% respectively and labour shortages are exerting upward pressure on pay will ensure that inflation concerns persist.