Inflation in the UK – live: Rise to 2.2% is a blow to further interest rate cuts

According to new data, inflation has risen for the first time in 2024 – to 2.2 percent, highlighting the Bank of England’s struggle to control prices.

Official figures show that inflation rose again above the Bank of England’s two percent target in July, partly due to holiday-related price increases on flights and hotels.

Every month, the Office for National Statistics (ONS) publishes inflation figures from the Consumer Price Index (CPI), which measures the rate of price increases year-on-year.

The rise in prices at the checkout in the year to July will be included as part of the headline inflation figure for the period, published this morning by the Office for National Statistics.

However, the British Retail Consortium (BRC)-NielsenIQ Shop Price Index has already released its own shop inflation data for July.

It showed that retail price inflation remained unchanged at 0.2 percent in July after months of slowing.

BRC Chief Executive Helen Dickinson said: “The fall in global food prices in 2023 has continued to have an impact, helping to reduce food inflation rates in the first seven months of 2024.

“However, there are signs of a turnaround, suggesting that pressure on food prices will increase again in the future.”

The latest inflation figure – the increase in prices over time – showed that inflation in June remained at the Bank of England’s target of two percent.

However, this masks large fluctuations in the prices of everyday goods: for some products, the price increase slowed down, while for others it accelerated.

One of the largest increases was in the average cost of hotels and other accommodation services, which rose 9.9 percent in the 12 months to June, compared with a 6.6 percent increase in the 12 months to May.

The price increase for breakfast cereals also accelerated: In June, prices rose by 3.5 percent, while in May there was an increase of 0.4 percent.

In contrast, inflation fell for tea (up 6.8 percent in the year to June, compared with a rise of 9.8 percent in May), rail travel (up 3.3 percent in June, up 6.3 percent in May) and frozen vegetables (3.8 percent in June, 6.0 percent in May).

New data shows inflation is set to rise this week for the first time in 2024, underscoring the Bank of England’s struggle to control prices.

Economists expect official figures released on Wednesday to show that inflation rose above the bank’s two percent target in July, partly due to holiday-related price increases for flights and hotels.

Every month, the Office for National Statistics (ONS) publishes inflation figures from the Consumer Price Index (CPI), which measures the rate of price increases year-on-year.

If inflation rose to 2.3 percent in July, what does the Bank of England expect next?

The bank expects inflation to rise to around 2.75 percent in the second half of the year due to continued price increases in the services sector and strong wage growth across the labor market.

Inflation will then decline again in the following years, to 1.7 percent in 2026, according to the forecast earlier this month, and then to 1.5 percent in 2027.

According to a consensus study by Pantheon Macroeconomics, consumer price inflation is expected to rise from 2 percent in June to 2.3 percent in July.

This would be the first increase in inflation this year.

The increase is due to holiday-related price increases for flights and hotels, energy costs and wage growth.

A rise in inflation could put a brake on further interest rate cuts by Bank of England policymakers next month.

Inflation has been at two percent since May, giving the bank’s monetary policy committee the confidence to cut the benchmark interest rate to five percent in early August, a quarter of a percentage point, after keeping rates high for a year to contain inflation.

But the Fed has since signaled that it will remain cautious about further rate cuts, and many economists expect rates to remain unchanged at the committee’s next meeting in September.

Catherine Mann, interest rate maker at the Bank of England, said in a recent interview that Britain should not be “seduced” into believing that inflation will remain low next year.

Ms Mann, an external member of the bank’s monetary policy committee, expressed concern that inflation could soon rise again, pointing to survey results suggesting that companies expect wage and price increases.

Speaking on the Economics Show with Soumaya Keynes podcast this week, she said: “There were a lot of new wage agreements in April this year. Next year there will be wage negotiations that are in line with the negotiations that have just taken place. So some people at the bottom of the pay scale have gotten quite a pay rise, and rightly so.”

“But those above them have not done so, which means they will do so next year, because it is important to keep relative wages within a hierarchical structure, in some way related to each other.”

Although a slight increase in inflation is not necessarily a bad sign for economic growth, Labour will probably want to keep the key interest rate at the Bank of England’s two percent target.

It will be interesting to hear Ms Reeves’ response as to whether inflation has risen as expected.