The inflation rate in the UK climbed to 2.2% in July, representing its first rise in 2024. The Consumer Prices Index (CPI) inflation grew from June’s 2%, which fell short of economists’ predictions of 2.3%.
The UK’s inflation rate increased to 2.2% in July from 2% in June; however, this figure remains below the anticipated consensus of 2.3%. This rise may impact the overall progress being made.
Notably, core inflation in Britain decreased from 3.5% in June to 3.3%, while services…— Mohamed A. El-Erian (@elerianm) August 14, 2024
The current inflation level surpasses the Bank of England’s target of 2%, leading to speculation regarding consecutive rate cuts in September.
Inflation in CPI services prices fell significantly from 5.7% in June to 5.2% in July, exceeding expectations.
For the third consecutive month in July, the core CPI inflation rate (excluding food and energy) remained stable. At annual rates:
1 month: 2.0%
3 months: 1.6%
6 months: 2.8%
12 months: 3.2% pic.twitter.com/QtwkGJErC5— Jason Furman (@jasonfurman) August 14, 2024
According to Grant Fitzner, the Chief Economist at ONS, “Inflation saw a slight increase in July as domestic energy prices fell, but not to the extent observed last year. This increase was somewhat balanced by a decline in hotel costs, which had surged in June.”
Policymakers are likely to overlook the minor rise in the headline figure, welcoming the significant reduction in services inflation – @LalithaTry reacts to the latest @ONS price statistics https://t.co/YdIP1sWfXr pic.twitter.com/Hd3advgqch
— Resolution Foundation (@resfoundation) August 14, 2024
Recent statistics reveal that prices are on an upward trend across the country compared to the earlier period this year; however, the growth rate is still slower than during the height of the cost crisis in 2022 and 2023.
UK #inflation increased from 2.0% to 2.2% in July, which is slightly lower than anticipated given the previous year’s base effects (energy bills declined less than they did last year).
The ‘core’ rate (excluding food & energy) dropped more than expected, from 3.5% to 3.3%, while services diminished from 5.7% to 5.2% 👍
— Julian Jessop FRSA (@julianHjessop) August 14, 2024
In early August, the monetary policy committee of the Bank of England decided to reduce interest rates by a quarter-point to 5%.
The challenge of rising inflation for policy measures
Economists now anticipate that the minor uptick in inflation may result in the Bank postponing further rate cuts temporarily, though additional reductions are expected before the year concludes.
Ruth Gregory, Deputy Chief UK Economist at Capital Economics, observed, “The less-than-expected increase in CPI inflation, along with the substantial decrease in services inflation to a two-year low, will give the Bank of England confidence that disinflation is progressing and may pave the way for more rate cuts later this year.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, remarked that the inflation rise is “not particularly welcome” for those anticipating wage hikes, but it is also “not a significant concern.”
Luke Bartholomew, Deputy Chief Economist at Abrdn, hinted that the decline in services inflation should reassure policymakers that inflationary pressures might not persist as previously feared. “The ongoing easing of inflation pressures suggests that there is a distinct possibility of at least one further rate cut this year,” he noted. The Bank of England has projected that inflation will reach around 2.75% in the latter half of this year, influenced by ongoing price increases in the service sector.
However, it forecasts inflation to decrease to 1.7% in 2026 and further to 1.5% in 2027. Darren Jones, Chief Secretary to the Treasury, reiterated the government’s dedication to addressing the challenges surrounding living costs: “The new administration is fully aware of the magnitude of the challenge we have inherited, with many families still facing difficulties with the cost of living. This is why we are making the difficult choices now to solidify our economy’s foundations so we can revitalize Britain and ensure every area of the country can prosper.”
