Inflation exceeds Bank of England target at 2.2%

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inflation After months of steady decline, interest rates have risen back above the Bank of England’s 2% target, the first increase until 2024.

this National Bureau of Statistics The Office for National Statistics (ONS) said consumer price index (CPI) inflation rose to 2.2% in July from 2% in June.

This was the first increase in inflation since December, partly because energy bills fell sharply in July last year and are no longer included in the annual calculation.

The Bank of England said on August 1 that a fall in energy costs in the headline inflation data would “make it clearer that domestic inflationary pressures remain.”

The latest figures mean prices are rising faster across the country than in previous months, but are still lower than in 2022 and 2023, when households and businesses were squeezed at the height of the cost crisis.

The data was published by the Bank of England Monetary Policy Committee The vote in early August cut interest rates to 5%, a quarter percentage point reduction.

The headline inflation rate of 2.2% was lower than the 2.3% expected by most City of London economists and below the central bank’s own forecast.

However, rising inflation is still likely to set the tone for the UK’s Monetary Policy Committee’s next decision in September, with most economists predicting they will keep interest rates on hold until November before cutting borrowing costs again.

Officials expect inflation to continue rising through the rest of 2024 before gradually declining again.

The closely watched CPI service price inflation rate fell to 5.2% in July, down from 5.7% in June, the lowest level since June 2022.

expert It has warned that persistently higher service price inflation could lead to a further rise in the headline inflation figure, but falling inflation figures could provide some encouragement to policymakers.

The annual Retail Price Index (RPI) inflation rate was 3.6%. The July RPI inflation rate is historically used as a benchmark for train fare increases the following year, although it is not used for 2022 or 2023. Fares are capped at below the RPI for 2023, following a 9% increase that month.

Darren Jones, chief secretary to the Treasury, said the figures showed many households were “still struggling with the cost of living”.

The core CPI, which excludes energy, food, alcohol and tobacco, is forecast to grow by 3.3 per cent in the year to July 2024, down from 3.5 per cent in June.

Ed Monk, associate director of personal investing at Fidelity International, said the decline in the core data showed that “the trajectory of rising prices remains downwards”.

The move came after the Office for National Statistics said on Tuesday that UK wage growth – another major driver of headline inflation – rose 5.4% year-on-year in the three months to June, down from 5.7% in the previous three months.

Martin Sartorius Confederation of British Industry The Confederation of British Industry (CBI) said: “Inflation below the Bank of England’s forecasts will be seen as a positive sign that price pressures among households and businesses are continuing to normalise.

“Today’s data will give the Bank’s Monetary Policy Committee some confidence that domestic price pressures are unlikely to derail a sustainable return to the economy’s 2% target.

“However, a second consecutive rate cut next month is not certain to happen.

“This is because the MPC will remain focused on upside risks to the inflation outlook, particularly as wages growth remains elevated.”

Meanwhile, Sarah Coles, head of personal finance at Hargreaves Lansdown, said rising inflation was “not welcome, particularly for those who were hoping to enjoy the extra wiggle room in their budgets from rising wages, but it would not be too disconcerting”.

She said: “The Bank of England is likely to continue with business as usual in September, keeping interest rates on hold, so this is unlikely to change the situation for savers and borrowers significantly.”

Luke Bartholomew, deputy chief economist at fund manager Abrdn, said the fall in services sector inflation “should help convince some policymakers that inflationary pressures are not as persistent as feared”.

“The central bank will not rush to cut rates again immediately following yesterday’s solid labour market report, but the continued easing of inflationary pressures means there is room for at least one more rate cut this year.”

The consumer price index, a measure of inflation that includes owner-occupied housing costs, rose 3.1% in the 12 months to July, up from 2.8% in June.