According to the latest official statistics, the pace of price increases has accelerated. The Office for National Statistics (ONS) reported that the rate of inflation rose to 2.2% in July, up from 2% in June. This marks the first increase in the rate since December of last year.
While prices did rise at a slightly faster rate, the increase was lower than anticipated by central bankers at the Bank of England and economists surveyed by Reuters. These experts had predicted a rise to 2.3%. This unexpected result could have implications for future interest rates.
Lower-than-expected inflation could potentially lead the Bank of England’s rate-setters to lower interest rates at a faster pace. In recent years, high inflation has prompted the Bank to raise interest rates, making borrowing more expensive. Currently, investors are anticipating that the interest rate will remain at 5% at the next Bank rate-setting meeting in September.
In addition to the overall rate of inflation, there was also a positive development in another key measure closely monitored by the Bank of England. Core inflation, which excludes volatile food and energy costs, fell to 3.3% in July, down from 3.5% in June. This has led analysts to believe that there is a stronger likelihood of a rate cut next month. Prior to the release of the inflation data, there was a 36% chance of a rate cut, which has now increased to a 45% chance.
One area that may see a significant impact from the rise in inflation is train ticket prices. Typically, rail ticket prices increase in line with the retail price index (RPI) measure of inflation for July. If this is implemented in January, it would mean a 3.6% increase in train ticket prices. However, the government may decide not to raise prices in line with RPI, as they did last year.
So why has inflation gone up? The ONS points to two main factors. First, energy bills did not decrease as much over the summer as they did last year. This led to higher raw material costs, which contributed to the increase in inflation. Additionally, cheaper prices in the hotel and restaurant sector helped to offset these rising costs. Services inflation dropped to 5.2%.
In response to the inflation figures, Darren Jones, the chief secretary to the Treasury, acknowledged the challenges facing the country and the impact on families. He stated, “The new government is committed to addressing these issues and taking the necessary steps to rebuild our economy and improve the lives of all citizens.”
