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UK inflation rose slightly less than expected to 2.2 percent in July, marking the first increase this year after hitting the Bank of England’s interest rate target in the previous two months.
The annual rise in consumer prices, reported by the Office for National Statistics on Wednesday, fell short of expectations of a 2.3 percent rise by economists polled by Reuters.
However, inflation remains above the BoE’s 2 percent target. Price pressures eased to that level for the first time in three years in May and remained there in June.
Services inflation, the BoE’s main measure of domestic price pressures, fell more than expected to 5.2 percent, from 5.7 percent the previous month. Analysts had expected a drop to 5.5 percent.
The weaker-than-expected inflation figure came after the BoE cut interest rates on 1 August for the first time since the coronavirus pandemic began.
Price pressures in the UK have been easing from a 41-year peak of 11.1% in October 2022.
“Inflation picked up slightly in July because although domestic energy costs fell, the fall was less than a year in the making,” said ONS chief economist Grant Fitzner.
“This was partly offset by hotel costs, which fell in July after strong growth in June.”
The BoE expects UK inflation to pick up slightly in the second half of this year, reaching 2.8 per cent in December, as the temporary drag from energy prices eases. The BoE expects consumer price inflation to fall to 2.2 per cent by the end of 2025, to 1.7 per cent in 2026 and then to 1.5 per cent in 2027.
“The new government is under no illusions about the scale of the challenge we have inherited, with many families still struggling to meet the cost of living,” said Darren Jones, chief secretary to the Treasury.
“That is why we must take the tough decisions now to repair the foundations of our economy so we can rebuild Britain and make every part of this country better.”
In the eurozone, inflation rose to 2.6 percent in July from 2.5 percent the previous month. On Wednesday, data from the United States is expected to show annual inflation unchanged at 3 percent in July.
This is a developing story.
