Will UK Inflation Hit 3% and Can the US Consumer Hold?

The week ahead – 17th August 2026
Author: Michael Hewson   

There was some good news this week on the inflation front after US CPI inflation slowed to 3.4% in July, while core prices slowed to 2.5%. Coming on top of the weaker than expected non-farm payrolls report earlier this month, which showed the loss of 23k jobs in July, the idea that the Federal Reserve would look to raise rates next month became much less likely.

That said, we are still hearing some noise from various Federal Reserve policymakers that aren’t ruling out the prospect of such a move quite yet, although with another payrolls and CPI report due to be released between now and the next Fed meeting a lot can still go wrong.  

Nonetheless the pace of price rises is slowing markedly even allowing for the sharp increase seen in gasoline prices in the early part of July.

The various prices paid components of the services sector and manufacturing sector only serve to complicate the picture further for the Fed, with services seeing an increase in price pressures in July, while manufacturing slowed to the lowest level since February.

Another worry for central bankers will be the blisteringly hot weather currently being experienced across Europe, along with the wildfire damage to crops, as well as the surging cost of fertiliser, due to the Straits of Hormuz disruption, which is likely to lead to upward pressure on food prices heading into winter, as well as next year.

Key takeaways

•          UK CPI for July is released on Wednesday 19 August, with the 13% energy price cap rise capable of pushing headline inflation back toward 3%.

•          UK unemployment and wage data land on Tuesday 18 August, where youth unemployment at 14.8% and the public-private wage gap matter more than the steady 4.9% rate.

•          UK retail sales and public borrowing for July arrive on Friday 21 August, after June sales rose 1% and borrowing slowed to £16bn.

•          Home Depot reports Q2 on Tuesday 18 August with shares near four-month highs and full-year comparable sales guidance of just 0–2%.

•          Target reports Q2 on Wednesday 19 August after Q1 same-store sales rose 5.6% and full-year profit guidance was lifted toward the top of its range.

•          Walmart reports Q2 on Thursday 20 August, having guided to net sales of around $183bn and profits of 72–74 cents against a disappointed market.


Nonetheless this week’s US inflation data has helped to underpin this week’s market price action with European equity markets still making fresh record highs, while the S&P500 looks set to retest 7,800 once more, as earnings continue to surprise to the upside.

This week we’ve seen further positive updates from the likes of Super Micro Computer, Cisco Systems and CoreWeave, with investors eagerly awaiting Nvidia at the end of the month.

Next week attention looks set to switch to the US consumer and specifically the latest numbers from the likes of Home Depot, Target and Walmart whose share prices have undergone differing fortunes over the last 3 months.

Walmart shares have struggled, perhaps because of how well they’ve done over the course of the last few years, while both Home Depot and Target have done better due to their much lower valuations, as well as the lower expectations and challenges that have faced both businesses these past few quarters.

We’ll also get the latest insight into the UK economy, with the latest CPI and retail sales numbers for July, after the latest Q2 GDP numbers which saw economic growth slow to 0.4% from 0.6% in Q1, with the services sector once again doing the bulk of the heavy lifting, with an expansion of 0.5%. Manufacturing and construction continued to struggle with contractions for both.

What should traders take away from this week's review?

The instruments most exposed to this week's calendar are sterling, UK rate expectations, gilts around Friday's borrowing figures, and the three reporting US retailers.

Scheduled releases can produce sudden volatility, so consider your own risk tolerance and position sizing around each event.

 

Why Does UK Youth Unemployment Matter More Than the 4.9% Headline Rate?

Youth unemployment has climbed to 14.8% and inactivity sits at 20.9%, so the steady headline rate is masking the labour market problem that actually matters

unemployment for the 3-months to May remained steady at 4.9%, and still lower than it was at the start of the year. While many Labour MPs continue to point to this being a good thing it merely serves to mask a wider problem, that of inactivity. There has been an improvement in some employment trends in recent months with the number of people employed rising by 148k to 34.475m, with that increase driven by both part time as well as full-time roles. This trend appears set to continue if recent similar jobs surveys are any guide, namely a recent report from KPMG. In a sign that inflationary pressures are squeezing incomes, the number of people holding second jobs rose to 1.278m, 3.7% of all employed individuals. The inactivity rate slowed slightly to 20.9%, however youth unemployment rose to 14.8%, up from 14.5%, and over double the rate it was back in July of 2022, when it was at a record low of 7.7%. We’ve also seen a moderation in wages growth, which slowed to 4.3%, however the divergence between the public and private sector saw further divergence with public sector wages rising to 5.5% in the 3-months to May, while private sector wages slowed to 4% from 4.1%. This is clearly unsustainable in the longer term and is likely to invite a reckoning at some point.    

Will UK Inflation Rise Back Toward 3% in July?

The 13% energy price cap increase feeds into this month's numbers, and with petrol prices up sharply through July, June's 15-month low of 2.6% may prove the floor.

June saw welcome news on UK inflation, after headline CPI fell to a 15-month low of 2.6%, with food prices slowing again to 1.7%, however core prices were steady at 2.6%. The weakness in food prices was most welcome with the likes of sugar, jam, syrups and chocolate, serving to see prices rise at their slowest pace since August 2024. Also acting as a drag was clothing and footwear prices seeing a decline of -0.5%. Input prices also saw a welcome slowdown, along with services inflation although the slowdown wasn’t as notable. It would appear that intense retailer competition is helping in terms of slowing food inflation which is welcome. Of course, that could well be the low point given the sharp rise in oil prices seen throughout July, which has seen petrol prices rise sharply throughout the month, although recent shop price inflation for July showed that prices rose at their slowest rate this year. Of course, we also need to factor in the increase in the energy price cap of 13%, in this month’s numbers, meaning that we could well see headline inflation edge back towards the 3% level.     

Did UK Consumer Spending Carry Into the School Holidays?

Quick answer: : June retail sales rose 1% after May's 1.2%, and whether that warm-weather momentum survived July lands the same morning as borrowing figures traders watch for gilts.

The UK consumer seems to have embraced the recent warm weather after retail sales for June saw a 1% increase, following on from a 1.2% rise in May. It would appear that slowing inflation during these months has prompted a bit of a splurge on the back of the warm weather and the football World Cup. Non-food sales rose on the back of demand for clothing and sports merchandise, as well as sales of fans and air conditioning units. On an annual basis retail sales rose 4.2%, with Q2 retail sales showing a 0.6% increase, compared to Q1. Recent retailer updates support this uptick in consumer activity which has been very much driven by on-line shopping at the expense of the high street. Could this pattern of higher consumer spending carry over into July and the start of the school holidays? We also saw a welcome slowdown in the pace of government borrowing in June to £16bn, with downward revisions to the numbers in April and May, of £21,6bn and £20bn, which meant that Q2 borrowing was lower than the same period last year, albeit still at eye-wateringly high levels.     

Can Home Depot Beat Again With Comparable Sales Guided at Just 0–2%?

Q1 beat on revenue and profit yet comparable sales came in at only 0.6%, and with shares near four-month highs the bar for this summer quarter has risen sharply.

We’ve seen a decent run higher in the Home Depot share price since their last set of earnings back in May, despite the shares initially sliding to their lowest levels since November 2023. That fall proved to be the low point with some solid gains since then. The initial decline didn’t make much sense given that the DIY retailer managed to beat forecasts on both revenues and profits. Q1 revenue came in at $41.77bn, with net income slowing to $3.29bn, down from $3.43bn a year ago. Sales were still up by 5% from the same quarter with the retailer saying it expects full year sales to increase between 2.5% and 4.5%, against an expectation of 4%. It would appear that despite the resilience in the consumer that Home Depot described the sector as coming under increasing pressure, with gross margins slipping to 33% as comparable sales came in at 0.6% which was weaker than expected. While the company said it was seeing a slowdown in bigger projects due to concerns over rising economic uncertainty and higher commodity prices, the summer period tends to be one its stronger quarters with the pessimism perhaps seen as somewhat overdone. We shall see when the company reports for Q2 with the shares close to 4-month highs. Home Depot reaffirmed its full year guidance of approx.15 new stores and comparable sales growth of 0-2%.  

How High Is the Bar for Target After 5.6% Same-Store Sales Growth?

Quick answer: Q1 delivered growth across every segment and prompted an upgraded full-year outlook, but with shares back at November 2024 levels expectations may now be the risk.

On the face of it, Target’s Q1 results back in May were a solid set of numbers, revenues coming in at $25.44bn, as same-store sales rose 5.6%, well above expectations. Despite this the shares closed the day sharply lower, however this weakness proved to be transitory with the shares now back at levels last seen in November 2024. Target said that they were able to report growth across all of its segments, including a strong performance in health, toys and baby segments, with digital sales increasing 8.9%, and net sales rising 6%. Profits also comfortably beat forecasts, coming in at $1.71 a share, or $781m, with the retailer hiking its full year revenue outlook, saying it now expects net sales growth of 4%, along with an expectation that profits will come in at the higher end of the $7.50 and $8.50 a share range. Against this sort of expectation and the recent share price gains the bar for this latest set of numbers could be quite high indeed.  

 

What Is Walmart's $183bn Q2 Guidance Telling Traders About Gasoline Prices?

Quick answer: Walmart's Q1 beat was overshadowed by a cautious Q2 outlook built on concerns that higher gasoline prices would change how consumers spend.

having outperformed its sector peers for so long Walmart shares have had a rocky Q2 share price wise, with the shares falling to the lowest levels since November last year in the aftermath of their Q1 numbers back in May, albeit from record highs. Having been a trailblazer for the US retail sector for a very long time and the fact that the shares have more than tripled from their Covid lows then perhaps a period of consolidation is required. Q1 revenues still managed to beat expectations, increasing 7.3% to $177.75bn, while profits came in line with expectations at 66c a share. The increase in revenue was helped by a 26% increase in global ecommerce sales, and a 37% increase in global advertising revenue. As with Q4m, which saw a similar sell-off, it was the outlook that prompted the decline in the share price as Walmart issued a Q2 outlook that fell short of expectations, due to concerns that higher gasoline prices would impact consumer spending patterns. Net sales are expected to increase by 4%-5% to around $183bn, while profits are expected to come in between 72c and 74c a share. For the full year guidance was left unchanged with net sales growth of between 3.5% and 4.5%, and full year EPS of between $2.75 and $2.85 a share.

WHAT'S IN FOCUS — SUMMARY

UK CPI for July on Wednesday 19 August is the week's dominant scheduled risk event, because the 13% energy price cap increase feeds in this month and could push headline inflation back toward 3% from June's 15-month low of 2.6%.

Three UK releases frame the week. Tuesday's jobs data matters for youth unemployment at 14.8% and the public-private wage divergence rather than the steady 4.9% headline. Friday brings retail sales and public borrowing together, after June sales rose 1% and borrowing slowed to £16bn. Meanwhile attention in the US switches from AI to the consumer, with Home Depot, Target and Walmart reporting across three consecutive days — Walmart having already guided cautiously on gasoline prices affecting spending.

FAQs

Which release is the biggest scheduled risk event this week?
UK CPI for July on Wednesday 19 August. The 13% energy price cap increase feeds into this month's data, and the brief notes headline inflation could edge back toward 3% from June's 15-month low of 2.6%. Sterling and UK rate expectations are the transmission points.

Why do this week's US retail earnings matter beyond the individual shares?
Home Depot, Target and Walmart report within three days of each other, giving three readings on the same US consumer. Walmart's cautious Q2 outlook already flagged higher gasoline prices affecting spending patterns, so traders are watching whether the other two corroborate or contradict that.

What should traders watch in the UK jobs data on 18 August?
Not the headline rate. Unemployment held steady at 4.9%, but youth unemployment rose to 14.8% and inactivity sits at 20.9%. Wage growth slowed to 4.3% overall, while public sector wages rose to 5.5% against private sector at 4% — a divergence the brief describes as unsustainable.

How could oil prices affect UK inflation this month?
US CPI slowed to 3.4% in July with core at 2.5%, and July payrolls showed a loss of 23,000 jobs. Together the brief describes a September rate hike as much less likely — though policymakers have not ruled it out, and another payrolls and CPI report lands before the next meeting.

Which UK assets are most exposed to this week's calendar?
Sterling and UK rate expectations sit at the centre of all three UK releases. The public borrowing figures published alongside retail sales on 21 August are the additional line traders watch for the gilt reaction, given the levels the brief describes as still eye-wateringly high.