Inflation has risen back above the Bank of England’s 2 per cent target, in the first increase of 2024 after months of steady declines.
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose to 2.2% in July, up from 2% in June.
It represents the first time inflation has climbed since December, driven partly by a sharp drop in energy bills last July falling out of the annual calculations.
Inflation measures the increase in prices over time. When the rate is high, the value of the British pound declines further, which leads to a reduction in consumers’ purchasing power. Labour has said it wants the rate to be “as low as possible”.
The Bank has said it expects inflation to rise to about 2.75 per cent in the second half of this year, amid persistent price rises in the service sector.
Inflation will then fall back over the subsequent years to 1.7 per cent in 2026, it predicted earlier this month, then down to 1.5 per cent in 2027.
Chancellor Rachel Reeves has already delivered a stark warning over the economy, highlighting a £22 billion black hole in public finances last month.
Key Points
TUC: The Bank of England should continue to bring interest rates down
07:48 , Joe Middleton
Commenting on today’s inflation data, which show a small rise in CPI inflation to 2.2 per cent, TUC General Secretary Paul Nowak said:
“The Conservatives failed to protect families from surging prices, rocketing interest rates, and a living standards crisis. But with a new approach the government can keep inflation low, ensure rates keep falling, and get wages rising.
“Inflation has been driven by problems like high energy prices, not by wages. The Bank of England should continue to ease pressures on families and businesses by bringing interest rates down.
“The government’s plan to boost workers’ rights can be a game changer, driving up productivity and making work pay. And if we invest in industry, including energy security with our own national supply, we can better control future inflation.”
What has the ONS said?
07:40 , Joe Middleton
Grant Fitzner, chief economist at the Office for National Statistics (ONS), said: “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago.
“This was partially offset by hotel costs, which fell in July after strong growth in June.”
Reaction: ‘Interest rate cut in September is improbable’
07:26 , Joe Middleton
Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales , said: “These figures suggest that the sweet spot for UK inflation has passed as the recent downward pressure on the headline rate from lower energy costs faded away in July.
“This increase signals the start of a period of moderately rising price pressures, with greater demand from a recovering economy and higher energy bills likely to keep inflation above the Bank of England’s 2 per cent target until next year.
“The notable slowdown in services inflation suggests that underlying price pressures are becoming less troublesome. The growing squeeze on wages from a subdued jobs market should help keep it on a firm downward trajectory.
“These figures mean a September rate cut is improbable and will likely lead to a definitive, possibly unanimous, vote among rate setters in favour of keep interest rates on hold.”
Labour needs to follow path of previous Conservative government – Hunt
07:22 , Joe Middleton
Shadow chancellor,Jeremy Hunt said:“Today’s figures show how important it is that the new Labour government follows the path of the previous Conservative government and focus on keeping inflation low.
“In government, we took the difficult decisions to reduce inflation from 11.1 per cent to the Bank of England’s target of 2.0 per cent – paving the way for the first interest rate cut in four years. However, there is clearly more to be done to keep inflation down.”
Further reaction to today’s jump in inflation
07:17 , Joe Middleton
Simon French, head economist at Penmure Liberum, described the inflation data as encouraging and that the Bank of England would still likely cut interest rates again at the end of the year.
Most economists think the Bank is unlikely to cut rates again in September, but could still make additional cuts in rates before the end of the year.
Encouraging UK inflation data – a rise of 2.2% YoY (-0.2% MoM) largely reflecting a smaller fall in Energy Price Cap than in July 2023. Further progress in core inflation to 3.3% YoY (3.5% previously). Nothing to change the view that a further UK interest cut in Q4 is likely
— Simon French (@Frencheconomics) August 14, 2024
Labour reaction to today’s inflation figures
07:11 , Joe Middleton
Darren Jones, Chief Secretary to the Treasury, said: “The new government is under no illusion as to the scale of the challenge we have inherited, with many families still struggling with the cost of living.
“That is why we are taking the tough decisions now to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off.”
Largest upward contribution to change in inflation came from housing and household services
07:10 , Joe Middleton
The Office for National Statitics said the largest upward contribution to the monthly change in inflation rates came from housing and household services where prices of gas and electricity fell by less than they did last year.
The largest downward contribution came from restaurants and hotels, where prices of hotels fell this year having risen last year.
Inflation rises to 2.2 per cent
07:04 , Chris Stevenson
Inflation has risen for the first time in 2024 – to 2.2 per cent – in new data which highlights the battle facing the Bank of England to keep prices in check.
Official figures to show that inflation rose back above the Bank of England’s 2% target in July, driven in part by holiday-related price rises for airfares and hotels.
Every month, the Office for National Statistics (ONS) reports the Consumer Prices Index (CPI) inflation figure, which measures the speed prices are rising year-on-year.
What about inflation for shoppers
07:00 , Alex Ross
The rise in prices at the shopping tills in the year up to July will be considered as part of the overall inflation figure for the period, which will be revealed by the the Office for National Statistics this morning.
However, the British Retail Consortium (BRC)-NielsenIQ Shop Price Index has already released it own shop inflation data for July.
It showed shop price inflation remained unchanged in July at 0.2 per cent after months of slowing.
BRC chief executive Helen Dickinson said: “The 2023 declines in global food commodity prices continued to feed through, helping bring down food inflation rates over the first seven months of 2024.
“However this shows signs of reversing, suggesting renewed pressure on food prices in the future.”
What costs more today compared to a year ago
06:00 , Alex Ross
The last figure for inflation – the rise in prices over time – showed it remained on the Bank of England’s target of 2 per cent in June.
However, this masked a wide variation in the rate for everyday items, with price rises easing for some products but accelerating for others.
One of the sharpest jumps was in the average cost of hotels and other accommodation services, which rose 9.9 per cent in the year to June, compared with an increase of 6.6 per cent in the 12 months to May.
Breakfast cereals also saw an acceleration in prices, up 3.5 per cent in June compared with a rise of 0.4 per cent in May.
By contrast, the rate of inflation eased for tea (up 6.8 per cent in the year to June compared with a jump of 9.8 per cent in May), train travel (up 3.3 per cent in June, up 6.3 per cent in May) and frozen vegetables (3.8 per cent June, 6.0 per cent May).
Inflation set to rise above 2 per cent in first increase this year
05:00 , Alex Ross
Inflation is set to rise for the first time in 2024 this week, in new data which highlights the battle facing the Bank of England to keep prices in check.
Economists expect official figures on Wednesday to show that inflation rose above the Bank’s 2% target in July, driven in part by holiday-related price rises for airfares and hotels.
Every month, the Office for National Statistics (ONS) reports the Consumer Prices Index (CPI) inflation figure, which measures the speed prices are rising year-on-year.
If inflation rises – what next?
03:30 , Alex Ross
If inflation rose to 2.3 per cent in July, what does the Bank of England expect will happen next?
Well, the Bank has said it thinks inflation will rise to about 2.75 per cent in the second half of this year, amid persistent price rises in the service sector and strong wage growth across the jobs market.
Inflation will then fall back over the subsequent years to 1.7 per cent in 2026, it predicted earlier this month, then down to 1.5 per cent in 2027.
How much is inflation expected to rise by
01:30 , Alex Ross
CPI inflation is expected to rise to 2.3 per cent in July from 2 per cent in June, according to a consensus compiled by Pantheon Macroeconomics.
This would mark the first increase in inflation this year.
The increase is based on holiday-related price rises for airfares and hotels, the cost of energy and wage growth.
Rise in inflation could put brakes on further reductions in interest rates
01:17 , Alex Ross
An increase in inflation could put the brakes on any further reductions to interest rates by Bank of England policymakers next month.
Inflation has been at 2 per cent since May and gave the Bank’s monetary policy committee the confidence to cut the base rate to 5 per cent, a quarter point drop, at the start of August, after a year of high rates to curb inflation.
But it has since signalled a cautious tone on further cuts, and many economists believe rates will be kept unchanged when the committee next meets in September.
UK should not be ‘seduced’
Tuesday 13 August 2024 23:30 , Alex Ross
Catherine Mann, a ratesetter at the Bank of England, said in a recent interview that the UK should not be “seduced” into thinking inflation will stay low over the coming year.
Ms Mann, an external member of the Bank’s Monetary Policy Committee, said she is concerned that inflation could rise again soon, pointing to survey evidence that suggests companies expect to increase wages and prices.
Speaking to the Economics Show with Soumaya Keynes podcast this week, she said: “There was a lot of new wage agreements in April this year. There will be wage negotiations next year, which will be in relationship to the negotiations that just happened. So some people at the bottom got quite a bit of an increase, rightfully so.
“But the ones above them didn’t, which means next year they will, because it’s important to keep relative wages within a hierarchical structure, kind of in relationship to each other.”
Labour wants to keep inflation ‘as low as possible’
Tuesday 13 August 2024 23:12 , Alex Ross
Although a small rise in inflation is not always seen as a bad sign for economy growth, Labour will likely want the rate to stay at the Bank of England’s 2 per cent target.
In Chancellor Rachel Reeves’ first speech to the Commons in July, said she aimed to deliver economic stability to allow taxes, inflation and mortgage rates to be kept as low as possible.
It’ll be interesting to hear Ms Reeves’ response if inflation has gone up, as expected.
Watch: What is inflation
Tuesday 13 August 2024 22:30 , Alex Ross
Factors behind predicted rise in inflation
Tuesday 13 August 2024 20:30 , Alex Ross
Economists expect official figures on Wednesday to show that inflation rose above the Bank’s 2% per cent target in July, driven in part by holiday-related price rises for airfares and hotels.
nother factor is energy prices. Bills fell sharply between the first six months of 2023 and of 2024, pulling down the overall inflation figure, but they fell more gradually between July 2023 and this year, meaning it will have less downward impact, ultimately increasing the year-on-year rate of inflation.
Inflation hit a peak of 11.1 per cent in October 2022, after a sharp rise in energy prices sparked by Russia’s invasion of Ukraine.
Economists forecast inflation to rise for July
Tuesday 13 August 2024 19:30 , Alex Ross
Consultancy Pantheon Macroeconomics said it thinks inflation rose 2.3% between July 2023 and 2024, after it held at 2% for the years to May and June.
Rob Wood, Pantheon’s chief UK economist, said: “The price of a one-night hotel stay has been very strong this year, partly reflecting a new seasonal pattern since Covid… as well hotels likely charging a form of surge (demand-based) pricing.
“The ONS surveys only about 100 hotels, which means outliers, such as a Welsh hotel price in June boosted by demand from a Pink concert, can distort the figures,” he said.
“But some hotel price inflation is genuine, as a range of CPI service components related to travel or that are labour-intensive have been strong this year,” he added.
What is inflation?
Tuesday 13 August 2024 18:30 , Alex Ross
The Bank of England (BoE) defines inflation simply as a term used by economists to “describe the increase in prices over time”.
Rising costs of goods and services on the UK high street indicate that the value of the British pound is in decline, which in turn means a reduction in consumers’ purchasing power and therefore their quality of life, as they are discouraged from spending more than they can afford.
This in turn eats into national economic growth.
Welcome
Tuesday 13 August 2024 17:19 , Alex Ross
Good evening, and welcome to our inflation blog that will cover analysis and reaction to the figures that are due to be released on Wednesday.
