UK CPI inflation data for July surprised in a good way, but the British pound only moved a few single-digit pips higher against both the euro and the US dollar, so remains largely unchanged as haven buying dominates the forex trading scene. UK CPI inflation for the year to July unexpectedly rose just 2.0% against the expected 2.3%. But with one-off factors in play and base effects, the latest data is likely more of an anomaly than a break from a rising trend. The June CPI data from the Office for National Statistics came in at 2.5%. Although the 2% figure was some way off economist forecasts polled by Reuters, it was closer to the 2.1% predicted by the Bank of England. Get FREE Forex Signals Now! First 2% UK CPI print since April Commenting on the latest UK CPI inflation data, Olivier Konzeoue, FX Sales Trader at Saxo Markets, said: “CPI rose by 2% in the 12 months to July 2021, down from 2.5% in June and below the 2.3% expected. This is the first time UK inflation has fallen back to 2% since April and the first time in a while that UK CPI doesn’t match economists’ consensus.” He also mentioned the base effect in terms of the previous year’s lockdown distortions. “This drop can be partly explained by the sharp rise in prices observed in July 2020 as lockdown restrictions were eased more broadly,” explained Konzeoue in his emailed comments. He continued: “This slowdown in inflation is broadly regarded as a blip. The Clothing and Footwear sector as well as Recreational and Culture were attributed the largest downward contributions whilst price for transport represented the largest upward contribution to change. At last, manufacturers felt a stronger than expected inflation. Their input prices were up 9.9% in July (from 9.7% the previous month) whilst output costs also rose 4.9% which was more than expected (4.4%).” Inflation and other economic calendar news can be pivotal trading events, so if you want to try your hand at forex options trading, check out our guide. UK inflation expected to pick up again But in keeping with other analysts, Konzeoue sees the July figures as something of a blip, but a glimpse into a future in which inflation falls back as the pandemic effects recede. “All in all, inflation in the UK is expected to pick up again in the coming months although base effects could create some further noise in future data. Investors may have just had a glimpse of how sharply inflation could fall once distortions implied by the pandemic have faded. “Markets seemed unmoved by the print, FTSE trades flat to mildly negative, GBP is on the backfoot as are most G10 currencies versus USD due to new COVID outbreaks globally causing a flight to traditional safe havens.” Yael?Selfin, chief economist at KPMG UK is less circumspect on the likelihood that July is an aberration. “The fall in year-on-year inflation last month masks the strength of inflationary pressures currently within the UK economy,” says Selfin. UK CPI inflation July – calm before the storm? ING analyst James Smith sees July data as representing the calm before the storm with inflation set to hit 3.0% “later this year”. “UK inflation took a bit more of a tumble than expected in July – but this feels remarkably like the calm before the storm. Indeed much of the surprisingly sharp deceleration from 2.5% to 2% can be put down to things like clothing prices, and to a lesser extent, household goods. The former had been seeing a sharp recovery in prices after recent lockdowns, while the latter had been pushed higher by global supply chain constraints. “These are temporary setbacks, and there’s little doubt that headline CPI will go well above 3% later this year – and in fact, the next set of data may confirm we got close in August. It’s not difficult to see inflation coming fairly near to the Bank of England’s forecast of 4% in around November.” This week’s UK earnings data will also have added to fears of wage-push inflation, with labour shortages pushing up costs for companies as they compete for both skilled and unskilled labour. Earnings rose a record 8.8% in Q2 and there were job opening in excess of 1 million. Looking to trade forex now? Invest at eToro! Trade Forex Now! Your capital is at risk Gary McFarlane Gary McFarlane Gary was the production editor for 15 years at highly regarded UK investment magazine Money Observer. He covered subjects as diverse as social trading and fixed income exchange traded funds. Gary initiated coverage of bitcoin and cryptocurrencies at Money Observer and for three years to July 2020 was the cryptocurrency analyst at the UKâ€™s No. 2 investment platform Interactive Investor. In that role he provided expert commentary to a diverse number of newspapers, and other media outlets, including the Daily Telegraph, Evening Standard and the Sun. Gary has also written widely on cryptocurrencies for various industry publications, such as Coin Desk and The FinTech Times, City AM, Ethereum World News, and InsideBitcoins. Gary is the winner of Cryptocurrency Writer of the Year in the 2018 ADVFN International Awards. View All Post By Gary McFarlane Daily LookMajors share Read Next Forex Broker News: Liverpool FC Sign Deal With ThinkMarkets Gerald Fenech 1 year UK CPI inflation data for July surprised in a good way, but the British pound only moved a few single-digit pips higher against both the euro and the US dollar, so remains largely unchanged as haven buying dominates the forex trading scene. UK CPI inflation for the year to July unexpectedly rose just 2.0% against the expected 2.3%. But with one-off factors in play and base effects, the latest data is likely more of an anomaly than a break from a rising trend. The June CPI data from the Office for National Statistics came in at 2.5%. 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