UK inflation rate ticks up to 2.2% in first rise this year

The UK’s inflation rate has risen for the first time this year, official figures show.

Overall prices rose by 2.2% in the year to July, slightly above the Bank of England’s target of 2% where the rate had been since May.

An increase was widely predicted and is largely due to prices of gas and electricity falling by less than they did a year before.

The latest figures mean that prices are now rising faster across the UK than in previous months, but still at a slower pace than in 2022 and 2023 when households were hit especially hard by higher energy and food bills.

Grant Fitzner, chief economist at the Office for National Statistics (ONS), said: “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago.

“This was partially offset by hotel costs, which fell in July after strong growth in June.”

Inflation, which measures the rate at which prices rise, surged to 11.1% in the wake of the Ukraine war and pandemic-related supply chain crunches, driving up the cost of living for millions.

But it had been steadily falling until June, as the Bank of England increased interest rates to dampen consumer demand.

The Bank expects inflation to rise further this year before falling back again.

Another set of inflation figures, as well as employment and wages data, will be released before its next rate-setting meeting in September.

There may be some good news on the horizon for businesses, which have been dealing with higher rates, wage bills and the surge in inflation over the last few years.

Livia Marrocco, owner of Marrocco’s restaurant and ice cream shop in Hove, told the BBC: “Products have gone up. Ingredients have gone up. We have put prices up slightly.”

However, she said that things have been looking up recently as the good weather and school holidays were bringing in more customers.

Mr Fitzner also told the BBC’s Today programme on Wednesday that “under the bonnet” price rises remained under control, with services inflation down in July and food prices unchanged.

“This still suggests that inflation pressures at least in the short run are fairly moderate,” he said.

According to the Institute for Fiscal Studies think tank, food and drink prices surged by 28.4% between September 2021 and September 2023.

Its latest analysis suggested that less well-off households saw their food bill rise by far more than those with higher incomes, as the sharpest price increases had been applied to cheaper brands.

But in July, food price inflation had settled down to just 1.5%, according to the ONS.

Meanwhile, price rises in the important services sector – which includes things like hotel stays, gym subscriptions and car repairs – have started to edge down.

Services inflation in July stood at 5.2% – down from 5.7% in June and 7.4% in July 2023, which was the joint highest rate for more than 30 years.

The Bank of England is likely to factor in July’s rise in the overall inflation rate when it next votes on interest rates in September.

Last month, it cut rates to 5% from 5.25% – the first reduction since the start of the pandemic – and experts have been predicting further cuts this year.

Higher rates can be good for savers but may drive up the cost of mortgages and other loans for consumers.

Debapratim De, director of economic research at Deloitte, said that the latest official data were “unlikely to materially alter the Bank’s thinking on interest rates”.

“We expect rates to be kept on hold in September, but two further cuts remain likely this year.”

Darren Jones, chief secretary to the Treasury, said that the new Labour government is “under no illusion” about the challenges still facing households.

But shadow chancellor Jeremy Hunt said that the new figures show that there is “more to be done to keep inflation down”.