UK Headline Inflation Drops to 6.8% - But CPI Remains Unchanged: What Does It Mean?

This morning’s announcement from the ONS has revealed that UK headline inflation has dropped to 6.8% in the year to July 2025. Good news on the face of it perhaps. However, the headline rate failed to cheer markets as the core consumer prices index (CPI) – which strips out the cost of volatile energy and food prices – remained unchanged.

You might be asking, why isn't a drop in headline inflation cause for celebration? The devil's in the details, specifically, core inflation. Core inflation, which excludes volatile energy, food, alcohol and tobacco prices, provides a clearer picture of underlying inflationary pressures within the UK economy.

On a monthly basis, the headline CPI decreased by 0.4% versus a consensus forecast of -0.5%. However, core inflationwhich excludes volatile energy, food, alcohol and tobacco prices, remained stubbornly high. This suggests that while some inflationary pressures are easing, persistent underlying factors continue to drive prices.

However, despite the cooling headline inflation in the UK, the core CPI (Consumer Price Index) remains unchanged from the previous month. This suggests a more entrenched inflation problem than the headline figure indicates.

What does this mean for you?

The unchanged core CPI indicates that the Bank of England is likely to maintain its hawkish stance, potentially leading to further interest rate hikes. This could impact mortgage rates, savings rates, and overall borrowing costs. Consumers may continue to feel the pinch as real wages struggle to keep pace with the persistent underlying inflation reflected in the core CPI. Further economic analysis and expert commentary will be needed to fully understand the long-term implications of these figures.