The Federal Reserve will release minutes from its July 25-26 policy meeting at 2pm ET. Look for details about how officials are thinking about further rate hikes.

  • Today, we explore a complicated inflation situation across the pond. Plus, we examine the economic impacts of Biden-era legislation one year later.

Today's newsletter, edited by Javier E. David and copy edited by Katie Lewis, is 746 words, a 3-minute read.

1 big thing: The U.K.'s grim inflation problem

Cyclists wait at a junction in front of the Bank of England in London. Photo: Hollie Adams/Bloomberg via Getty Images

A run of encouraging data shows the U.S. is on track to cure its inflation problem. The same cannot be said for the U.K., where inflation is proving stubborn.

Why it matters: Policymakers have warned about dreaded outcomes that would make inflation difficult to stamp out, including sticky service sector price gains and rapid pay increases.

  • Those scenarios look to be playing out in the U.K., despite the central bank's aggressive actions.

What's new: The headline annual inflation rate was 6.8% in July, down from the 7.9% the prior month — a dramatic decline that "principally reflected" plummeting energy prices, the government said.

  • But the core measure that excludes energy, food and other volatile categories remained stubbornly high, at 6.9%. That is down slightly from the 7.1% reached in May, the peak since the nation's pandemic-era inflation burst.

What they're saying: "[T]oday's high core figures will have the hawks at the Bank of England crowing for more policy action," Jamie Dutta, an analyst at online broker Vantage, wrote in a note.

Details: Perhaps most worrisome were developments in the services sector — on the radar of global central bankers because price gains there can be difficult to stamp out.

  • That's increasingly proving to be the case in the U.K.: Service sector inflation rose by 7.4% in the year through July — reaccelerating to the highest rate in more than 30 years. Higher prices for hotels and airfare underscored still-strong consumer demand.

The backdrop: Separate data earlier this week showed U.K. wages grew 7.8% in the second quarter compared to the same period a year ago, the quickest annual rate since the government started tracking the data in 2001.

  • Policymakers worldwide have warned about the risk of a wage-price spiral — a difficult-to-break cycle in which higher prices push workers to demand higher wages, in turn fueling higher inflation, and so on.
  • That has looked increasingly likely where the U.K.'s tight labor markets and rapid pay increases have been influenced by pandemic-era dynamics and Brexit.
  • It's a positive development for workers there, who are seeking real wage gains in the face of a crushing cost-of-living crisis. That's in contrast to dynamics in the U.S., where workers are finally seeing real wage gains because of slower inflation.

The bottom line: The Bank of England is expected to raise rates for the 15th consecutive time since late 2021 next month, continuing efforts to cool an economy where inflation remains the highest of any major developed nation.

2. IRA, one year later

Illustration: Annelise Capossela/Axios

Last year, the Inflation Reduction Act was signed into law — one piece of legislation central to "Bidenomics" the administration has touted in the lead-up to the presidential election.

The impact thus far: Treasury Department analysis finds the law has spurred stronger business investment, a tailwind for economic growth.

  • The law, and others including the Bipartisan Infrastructure Law and the CHIPS and Science Act, unlocked billions of dollars that spurred investments in manufacturing and clean energy.

What they're saying: "There is evidence that private investment has held up especially well in recent years, despite the recent increase in interest rates, which—all else equal—would tend to slow investment rates," Treasury officials Eric Van Nostrand and Laura Feiveson write.

  • The IRA, along with other Biden-era legislation, "likely explains some of that strength," the officials write.

Details: The analysis finds that business fixed investment — i.e., what companies spend on new buildings, equipment, research and more — is roughly the same share of gross domestic product as it was before the pandemic recession.

  • That's unusual, the authors write: After a recession, business fixed investment usually lags the overall recovery (as was the case following the 2008 recession).
  • What's happening in recent years is "a better outcome than after every other recession since 1980," the officials find.
  • They also note that construction of manufacturing facilities in real terms (adjusted for inflation) has more than doubled since 2021, in part reflecting new factories as a result of the law.

Of note: The Treasury analysis also found that counties where IRA-related investments have been announced tended to be those where college graduation rate, employment and wages are lower.

  • "These communities are poised to reap huge benefits from new investment. New plants could bring people into the labor force who have been left behind," the officials say.

The backdrop: Administration officials have been crisscrossing the country this week to tout the law's economic impact. It comes as consumers generally remain downbeat about the economy, despite improving conditions and easing inflation.