UK inflation edged higher to 2.2% in the 12 months to July – its first increase this year and taking it back above the Bank of England target.
This is up from the 2% figure that was recorded in May and June, and is the first time inflation has risen since December 2023.
Inflation had been steadily coming down this year and had finally hit the Bank of England target of 2% – paving the way for an interest rate cut. But a small increase had been expected due to energy prices falling by less than they did last year.
Economists polled by Reuters had forecast a rise to 2.3%. The Office for National Statistics, ONS, said the largest downward trend in inflation came from restaurants and hotels, with hotel costs having fallen in July.
Core inflation, which excludes energy, food, alcohol and tobacco, also fell from 3.5% down from 3.3%, while services inflation, which is closely watched by the Bank of England, is down from 5.7% to 5.2%.
The Consumer Price Index, CPI, is the main measure of inflation and this shows how the prices of goods and services have changed over time. Inflation data is released by the ONS every month.
ONS chief economist Grant Fitzner said: “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago.
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This was partially offset by hotel costs, which fell in July after strong growth in June. The increased in the cost of goods leaving factories slowed a little in the year to July, led by falling petrol prices. Meanwhile, raw materials prices picked up for the first time in over a year, driven by smaller falls in gas and electricity costs.”
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.”
The ONS uses a “basket of goods” and services to measure price rises. This “basket of goods” is regularly updated to reflect current trends, with vinyl records and air fryers added in 2024, and hand sanitiser taken out to reflect less people buying this after the coronavirus pandemic.
The ONS releases the latest inflation data every month – but the main CPI figure you see in headlines is used to represent an average. This means the individual prices of some goods may be higher or lower than this central figure.
The Bank of England has put up interest rates to try and lower inflation. The base rate influences the interest rate you’re offered by banks and lenders – so when it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere.
When people spend less money, this brings down demand and lower prices, which should then lower inflation. But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched.
Higher borrowing costs also risks damaging the economy. The base rate stood at just 0.1% in December 2021. It reached a peak of 5.25% in August 2023 and was finally been cut to 5% on August 1. The next base rate decision is due on September 19.
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