The UK’s inflation rate has increased for the first time this year, according to official data.
Prices climbed by 2.2% in the year leading up to July, surpassing the Bank of England’s 2% target, which had held steady since May.
The rise, although anticipated, was driven by a smaller-than-expected decline in gas and electricity prices compared to last year. This increase was lower than many economists had predicted.
While inflation is now growing at a faster rate than in previous months, it remains slower than the spikes seen in 2022 and 2023, when households faced steep rises in energy and food costs.
The Bank of England projects inflation could reach 2.75% in the coming months before dropping below 2% next year.
Before the Bank’s next interest rate decision on September 19, additional inflation figures, along with employment and wage data, will be released.
Last month, the Bank of England reduced interest rates from 5.25% to 5%—the first cut since the pandemic began—in an effort to curb inflation. While higher rates benefit savers, they can lead to increased mortgage and loan costs for consumers.
‘September cut not off the table’
Experts have been predicting further cuts this year, with investors now raising their bets that the Bank will opt for a cut in September.
Sanjay Raja, chief UK economist at Deutsche Bank Research, said: “A September rate cut should no longer be off the table. And it’s entirely conceivable to think that we could get multiple more rate cuts this year.”
But Ruth Gregory, deputy chief UK economist at research group Capital Economics, said Wednesday’s data “may not alleviate the Bank’s concerns about persistent price pressures entirely”.
The Bank of England also monitors inflation within the services sector when determining interest rates. Although inflation in this sector eased to 5.2% in July, this slowdown was influenced by fluctuations in airfares and hotel prices, which can be unpredictable.
Gregory noted, however, that she anticipates the Bank will implement another rate cut later this year, reducing the main interest rate from 5% to 4.5%.