Inflation has increased above the Bank of England’s inflation target in July rising to 2.2 per cent.
The ONS reported that the consumer price index rose by 2.2 per cent in the 12 months to July 2024, dipping over the bank’s inflation target of 2 per cent.
This also represented an increase on the previous month when inflation stood at 2 per cent.
Quilter Cheviot head of fixed interest research, Richard Carter, said: “Today’s inflation data is a reminder for the Bank of England of the difficult task it has on its hands as inflation has risen again above the 2 per cent target to 2.2 per cent in July.
“One data point will not cause panic to spread, and much of this rise was expected due to favourable comparisons falling out of the figures."
However, Carter added that there was some positivity in the ONS’s findings as the inflation figures are “slightly better than the market anticipated”, which the Bank of England will be “very pleased” to see.
Carter attributed this rise in inflation to factors such as energy costs as this now begins to fall less than last year.
“It is such elements of this data, however, that will keep any interest rate cuts tempered for now, with the BoE opting for a gradual decline in rates to avoid inflation taking root once more and spiralling,” Carter additionally stated.
“Indeed, the bank was insistent in its rate cut earlier this month that monetary policy will have to remain restrictive in order to keep inflation subdued at more palatable levels.”
However, Fidelity associate director for personal investing, Ed Monk, argued that a rise in the headline rate of inflation today is less important than the slight easing in core inflation.
He explained that the ONS reported core inflation had fallen from 3.5 per cent to 3.3 per cent in the past month which suggests the trajectory for price rises is still downwards.
“Easing wage rises reported yesterday point to a similar trend and suggest we remain on track for further cuts to interest rates in the months ahead,” he added.
Meanwhile, Royal London consumer finance specialist, Sarah Pennells, pointed out that the inflation increase will be “concerning” for people hoping for a period of relative financial calm.
“We know from our latest Financial Resilience Report data that almost a fifth of people find themselves overdrawn, either regularly or from time to time, while the same number have less than £100 in cash savings,” she explained.
Pennells described this as a “worrying picture” and argued that, against this backdrop, the news that prices have increased at a faster pace once again is a “clear reminder” that while the cost of living crisis may be receding, high costs and bills are not.
tom.dunstan@ft.com
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