The largest downward contribution came from restaurants and hotels, with inflation falling from 6.3% in June to 4.9% in July.

The softer core inflation and services inflation rates could raise investor expectations of a Q4 2024 Bank of England rate cut.

However, the unexpected fall in the UK unemployment rate and the rise in headline inflation could leave the BoE in a holding pattern. Tighter UK labor market conditions may support wage growth, possibly increasing disposable income and consumer spending. Higher consumer spending trends could fuel demand-driven inflation.

On Friday, August 16, UK retail sales figures could give investors further insights into the demand environment amid ongoing policy uncertainty.