Morgan Stanley economists say domestic inflation pressures in the UK appear less
severe than headline CPI suggests. July CPI rose to 2.9% from 2.6% in June, but
services inflation slowed to 3.4% YoY from 3.6% and private‑sector wage growth
remains weak as core services inflation decelerates. A competitive retail
environment is limiting pass‑through to food prices. While a persistent energy
shock could raise weaker indirect and second‑round inflation risks, wages and
Mild services inflation are likely to absorb most of the pressure.
