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UK inflation rose marginally less than expected to 2.2 per cent in July, marking the first increase this year after hitting the Bank of England’s target rate in the previous two months.
The annual increase in consumer prices, reported by the Office for National Statistics on Wednesday, undershot expectations of a rise to 2.3 per cent from economists polled by Reuters.
However, the inflation figure was still above the BoE’s 2 per cent target rate. Price pressures fell to that level for the first time in three years in May, and held steady in June.
Services inflation, the BoE’s key measure of domestic price pressures, declined more than expected to 5.2 per cent, from 5.7 per cent in the previous month. Analysts expected a fall to 5.5 per cent.
The weaker than expected inflation figure comes after the BoE cut interest rates on August 1 for the first time since the onset of the coronavirus pandemic.
Price pressures in the UK have gradually declined from their 41-year peak of 11.1 per cent in October 2022.
“Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago,” said ONS chief economist Grant Fitzner.
“This was partially offset by hotel costs, which fell in July after strong growth in June.”
The BoE expects that UK inflation will increase slightly in the second half of this year, reaching 2.8 per cent by December, as the temporary drag from energy prices fades. It expects consumer price inflation to decline to 2.2 per cent by the end of 2025, to 1.7 per cent by 2026, and then to 1.5 per cent in 2027.
“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,” said Darren Jones, chief secretary to the Treasury.
“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.”
In the Eurozone, inflation rose to 2.6 per cent in July from 2.5 per cent the previous month. Later on Wednesday, data from the US is expected to show annual inflation was unchanged at 3 per cent in July.
This is a developing story
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