nflation Rises Above Bank of England’s 2% Target in July 2024
Inflation in the UK has increased above the Bank of England's 2% target for the first time in 2024, ending a period of steady declines. The Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) inflation rose to 2.2% in July, up from 2% in June.
This marks the first uptick in inflation since December and is partly attributed to last July's sharp drop in energy bills no longer being factored into annual calculations. The Bank of England previously warned that the diminishing impact of falling energy costs would reveal the "persistence of domestic inflationary pressures" more clearly.
While prices are rising faster than in previous months, the current inflation rate remains significantly lower than the peaks experienced in 2022 and 2023, when both households and businesses were heavily impacted by the cost-of-living crisis.
Earlier in August, the Bank of England’s Monetary Policy Committee (MPC) voted to reduce interest rates to 5%, a quarter-point cut. Despite the rise in inflation, the headline figure of 2.2% came in lower than the 2.3% anticipated by most City economists and fell short of the Bank’s own forecast.
This inflation increase may influence the MPC's policy decision in September, with many economists predicting the committee will maintain rates and possibly wait until November before making any further cuts to borrowing costs. Officials expect inflation to continue edging up for the remainder of 2024 before gradually declining again.
A key indicator, the annual rate of CPI services price inflation, dropped to 5.2% in July, down from 5.7% in June, marking its lowest rate since June 2022. While persistently high services price inflation could drive overall inflation higher, this decline may provide some reassurance to policymakers.
The annual Retail Prices Index (RPI) inflation rate stood at 3.6% in July. Historically, the July RPI inflation rate has been used as a benchmark for setting train ticket prices for the following year, although it was not utilized in 2022 or 2023 due to caps on fare increases.
Darren Jones, Chief Secretary to the Treasury, acknowledged that many families are “still struggling with the cost of living” despite the slight easing in some inflationary pressures.
The rate of core CPI, which excludes volatile items like energy, food, alcohol, and tobacco, fell to 3.3% in the year to July 2024, down from 3.5% in June. Ed Monk, associate director for personal investing at Fidelity International, noted that this drop suggests the “trajectory for price rises is still downwards.”
The ONS also reported earlier in the week that wage growth, another key factor in headline inflation, was 5.4% year-on-year for the three months to June, down from 5.7% in the previous three months.