We see the UK's July CPI data more than reversing the rise from April, with the headline rate falling 0.2 ppt to a six-month low of 1.8% y/y. This would involve a further unwinding of the late-Easter-induced rise in airfares that helped trim the rate to 2.0% in May and June. Gasoline/fuel prices likely helped reduce the headline rate as well.
This expected weaker July reading would reflect even weaker clothing and household goods inflation, a testimony to the continued troubles on High Street, as weak demand has forced retailers into even deeper discounting (July is a notable month for retail discounting). Indeed, the possibility of new lows may occur as weak mid-summer sales intensify discounting, a development that has already been flagged in price survey data published by the British Retail Consortium. These combined effects largely explain why we envisage the core measure falling back a notch to 1.7%, which would mark a reversal of the June rise.
This headline outcome would be in line with the revised Bank of England (BoE) thinking that was laid out in the August Inflation Report.
Otherwise, there may be more signals of soft(er) prices in the PPI numbers to be released alongside, albeit with the impact of the slump in GBP clearly affecting the input price data. However, the house price data may be more notable, as this is possibly becoming a more pertinent factor for the BoE as it wrestles with the downside risks that have emerged for the near-term outlook (for both prices and growth). House price inflation in May slowed to 1.2% y/y, a nearly six-year low, with more marked declines evident in London.