Inflation Sees First Increase of the Year
The figures come after it was revealed that wage growth was 5.4 percent year-on-year in the three months to June, down from 5.7 percent in the previous three months.
Consumer Price Index (CPI) inflation increased to 2.2 percent in July, surpassing the Bank of England’s (BoE) 2 percent target. This is the first rise this year after several months of decline.
The Office for National Statistics (ONS) confirmed on Wednesday that inflation had risen from 2 percent in June. The BoE anticipates further increases for the remainder of 2024 before gradually decreasing again.
The inflation figures indicate that prices are increasing at a faster rate compared to previous months, primarily due to a reduction in the impact of decreasing energy bills.
Grant Fitzner, chief economist at the ONS, noted, “Inflation slightly rose in July because although domestic energy costs decreased, the decline was not as significant as a year ago.”
Although energy bills decreased last month, they had a lesser impact on the inflation figure than in previous months.
Nevertheless, inflation is still below the levels seen during the peak of the cost of living crisis in 2022 and 2023, when it reached 11.1 percent in October 2022. It is also lower than the predicted 2.3 percent by most economists in London and below the BoE’s forecast.
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Inflation, which had been stable at 2 percent from May to June, measures the speed of price increases over a year. The CPI tracks about 700 items people purchase or pay for, including groceries, transportation, and household expenses.
The CPI inflationary rise follows the ONS’s announcement on Tuesday that wage growth—a key factor in inflation—was 5.4 percent year-on-year in the three months to June, compared to 5.7 percent in the previous quarter.
Interest Rates Cut
The recent inflation figures are connected to the BoE’s Monetary Policy Committee (MPC) decision to reduce interest rates from 5.25 percent to 5 percent on August 1—a move not seen in over four years.
The inflation data could impact the MPC’s choices in September, as most economists expect them to maintain interest rates, with a decision on further cuts likely in November.
BoE Governor Andrew Bailey cautioned on August 1 that the central bank needs to “ensure inflation remains low, avoiding hasty and excessive interest rate reductions.”
The BoE emphasizes that maintaining a high base interest rate is the primary method of controlling inflation. When interest rates rise, consumer spending is influenced. Reduced spending leads to lower prices and decreased inflation.
Families Still Struggling
In response to the inflation figures, Chief Secretary of the Treasury Darren Jones acknowledged the financial challenges many families are facing and highlighted the government’s efforts to address the cost of living issues.
Shadow Chancellor of the Exchequer Jeremy Hunt pointed out the need for continued action to manage prices effectively, urging the government to adopt strategies similar to the previous administration.
Hunt, who served as chancellor until early this year, stated, “During our tenure, we made tough choices to reduce inflation from 11.1 percent to the BoE’s target of 2 percent—leading to the first interest rate cut in years.”
He advised his successor, Rachel Reeves, to avoid increasing taxes and breaking promises based on the latest data.
PA Media contributed to this report.
