EU and UK Inflation: Updates

EU and UK Inflation: Updates. Bond Market also waiting for Jackson Hole

Updated Inflation Data

United Kingdom
Inflation (CPI) in the UK rose to 3.8% year-on-year in July 2025, compared with 3.6% in June. This is the highest level recorded since January 2024.
The pressure was mainly driven by sharp increases in transportation costs (especially air fares), food prices, and energy.

Eurozone / European Union
Inflation in the euro area (HICP) remained stable at 2.0% year-on-year in July 2025, in line with the flash estimate from June.
Within the index, services inflation slowed slightly to 3.1% year-on-year (from 3.3% in June).

Implications for the Bond Market

United Kingdom
The above-expected increase in inflation (3.8%) raises expectations of a less accommodative monetary policy from the Bank of England. This could result in higher yields on UK government bonds (a bond sell-off), as investors demand greater compensation for inflation risk.

Eurozone
Stable inflation at 2.0% – close to the ECB’s target – points to a more cautious stance. Bond yields in the euro area could remain contained, pending clearer signals from the ECB.

Global / USA
In the United States, bond markets – especially Treasuries – are focused on the Jackson Hole symposium for indications of potential rate cuts. The yield curve has already shown signs of flattening: short-term yields (2 years) have risen, while long-term yields (10 years) remain relatively steady, highlighting uncertainty around the timing and scale of possible cuts.

Awaiting the Fed’s Speech at Jackson Hole (20 August 2025)

Today, 20 August 2025, Federal Reserve Chairman Jerome Powell will deliver his speech titled “Economic Outlook and Framework Review” at the Jackson Hole symposium.

Investors will be watching closely to see if Powell signals a possible rate cut as early as September. However, most forecasts – including those of analysts such as Ed Yardeni – suggest that Powell will take a cautious, data-dependent approach, without committing to immediate rate cut strategies.

If signs of prudence emerge, or conversely an openness to cuts, long-term yields could react accordingly: in a “less hawkish” scenario, bonds would appreciate (yields falling); while a loss of confidence in early cuts could push yields higher.

Summary of Implications

In Summary

• The UK is experiencing accelerating inflation, which could drive bond yields higher.
• The euro area shows inflation stability, providing a less volatile backdrop for bond markets.
• Powell’s speech today is the key variable: a more dovish tone could ease US yields, while an “owl-like” cautious stance would keep uncertainty and volatility elevated across global markets.