Economic Perspectives –

CPI annual inflation rate was a less-than-expected 2.0% in July: but expect it to rise in coming months

The latest Perspective from Ruth Lea CBE, Economic Adviser to Arbuthnot Banking Group.


23rd August 2021


Ruth Lea CBE


In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK data:

  • CPI annual inflation fell to 2.0% in July, around 2.3% had been expected, compared with June’s 2.5%.
  • The CPI was flat (MOM) in July 2021, compared with a 0.4% (MOM) rise in July 2020 when the first lockdown restrictions were being relaxed.
  • Both producer output prices inflation and producer input prices inflation picked up in July, suggesting some price pressures in the pipeline.
  • The ONS reported house prices rose by 4.2% (MOM, seasonally adjusted) in June, ahead of the tapering of the stamp duty holiday, to be 13.2% higher YOY, the highest annual growth rate since November 2004. The stamp duty nil rate threshold (for England and Northern Ireland) was reduced from £500,000 to £250,000 on 1 July and will revert to £125,000 on 1 October.
  • The labour market continued to recover. The number of payroll employees (HMRC data) increased by 182,000 in July to 28.86mn, though it remained 201,000 below pre-coronavirus pandemic levels.
  • Employment (from the LFS) rose by 95,000 (QOQ) in the three months to June to 32.28mn but was still 329,000 lower YOY.
  • The unemployment rate slipped to 4.7% in the three months to June, 0.2 percentage points lower QOQ, but still 0.6 percentage points higher YOY.
  • Vacancies rose by 290,000 (QOQ) in the three months to July, to 953,000, a record high (records began in 2001). The existence of increasing vacancies, and various indicators of recruitment difficulties, points to labour market mismatches as the economy recovers.
  • The annual earnings growth rate rose to 8.8% for total pay (including bonuses) and 7.4% for regular pay (excluding bonuses) in the three months to June 2021. The ONS said the data were distorted by compositional and base effects. Allowing for the distortions the ONS estimated that the “underlying” annual earnings growth rate for regular pay was between 3.5% and 4.9%.
  • Output per hour (the main measure of labour productivity, “productivity hours”) fell by 0.5% (QOQ) in 2021Q2, as total hours worked rose 5.4% (QOQ), whilst gross value added (GVA) rose by 4.8% (QOQ).
  • Retail sales volumes, unexpectedly, fell by 2.5% (MOM) in July, partly reflecting special factors. But they were still 5.8% higher than in pre-pandemic February 2020 and 2.4% higher YOY.
  • Public sector net borrowing (PSNB) in July 2021 was £10.4bn, compared with £20.4bn in July 2020, but was still the second highest July borrowing figure since monthly records began in 1993.
  • The PSNB for the first four months of FY2021 totalled £78.0bn, £61.6bn less than the equivalent period in FY2020. It also undershot the OBR’s implicit forecast (made in March 2021) - by around 25%.
  • Public sector net debt (PSND) was £2,216.0bn at end-July 2021 and 98.8% of GDP, the highest ratio since the 99.5% recorded in March 1962. Suffice to say, the debt/GDP ratio is still rising.

Ruth Lea said “Even though July’s CPI inflation rate was lower than expected, it is almost certain that inflation will pick up as the year proceeds. Higher household energy bills are expected and the temporary 5% VAT rate for hospitality is due to rise to 12.5% at end-September. But the Bank’s projection of around 4% by 2021Q4, made in August, now seems on the high side. Nevertheless, there is clearly no room for complacency and there remains the risk that inflationary pressures will become embedded. The Bank will remain vigilant.” 





Economic Perspectives

Would you like to receive Arbuthnot Latham’s weekly Economic Perspectives from Ruth Lea CBE directly to your email inbox? Click the button to subscribe to our email newsletters.

Subscribe to our newsletters

Author -

Ruth Lea CBE

Ruth Lea CBE

Economic Adviser, Arbuthnot Banking Group

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674