UK inflation rate rises to 2.2% for first time this year

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Britain's inflation rate has risen for the first time this year, according to official figures.

Overall prices rose 2.2% in the year to July, the highest level since May and slightly above the Bank of England's 2% target.

The rise was widely expected, as gas and electricity prices fell less than a year ago. The increase was also smaller than many economists had expected.

The latest figures show prices are rising faster across the UK than last month, but at a slower pace than in 2022 and 2023, when households were hit particularly hard by rising energy and food prices.

The Bank of England expects inflation (a measure of price growth) to rise to 2.75% in the coming months before falling below 2% next year.

Another inflation figure, as well as employment and wages data, is due to be released ahead of the next rate-setting meeting on September 19.

The Bank of Korea raised interest rates to combat soaring inflation, but cut them last month from 5.25% to 5%, the first cut since the pandemic began.

Higher interest rates may be good for savers, but they can increase the cost of mortgages and other loans for consumers.

'September cut not considered'

Experts have been predicting further cuts this year, and investors are now increasing their bets that the central bank will opt for a cut in September.

“A September cut is no longer out of the question, and it’s entirely possible to think there could be several more cuts this year,” said Sanjay Raja, chief UK economist at Deutsche Bank Research.

But Ruth Gregory, deputy chief UK economist at research group Capital Economics, said Wednesday's data may not fully allay concerns about banks' continued price pressures.

For example, banks also consider inflation in the services sector when setting interest rates.

Prices in this sector slowed to 5.2% in July, but this was attributed to significant volatility in airfares and hotel accommodations.

But Gregory added that he expects the Bank of Korea to cut rates again this year, lowering the benchmark rate from 5 percent to 4.5 percent.

Libya Maroko runs a restaurant and ice cream parlour in Hove.

The rate cut could be good news for businesses that have struggled with high interest rates and skyrocketing inflation in recent years.

Livia Marroccos, owner of the Marroccos restaurant and ice cream parlour in Hove, told the BBC: “Products have gone up. Ingredients have gone up. Prices have gone up a little bit.

But things have been improving recently, she said, with better weather and more customers thanks to school holidays.

Inflation has soared to 11.1%, driven by supply chain disruptions caused by the war in Ukraine and the pandemic, sending living expenses soaring for millions.

However, it continued to decline through June as the Bank of England raised interest rates to curb consumer demand.

Grant Fichtner, chief economist at the Office for National Statistics (ONS), said: “Inflation rose slightly in July. Domestic energy costs fell, but at a lower rate than a year ago.

“This was partly offset by lower hotel costs in July following strong growth in June.”

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

“This suggests that inflation pressures remain fairly benign, at least in the short term,” he said.

According to the Institute for Fiscal Studies, food and beverage prices soared 28.4% from September 2021 to September 2023.

A recent analysis found that food costs for lower-income households have risen much more than for higher-income households, with the lowest-priced brands seeing the biggest increases.

However, food price inflation remained stable at 1.5% in July, according to the ONS.

Treasury Secretary Darren Jones said the new Labor government was “under no illusions” about the hardships households were still facing.

But Shadow Chancellor Jeremy Hunt said the new figures showed “there is more work to be done to bring down inflation”.

Lower interest rates could reduce borrowing costs and boost housing market activity.

Separate figures released by the ONS on Wednesday showed house prices were rising, but the data was taken before interest rates were cut in August.

According to the ONS, UK property prices rose by 2.7% in the year to the end of June.

In the UK, the average house price rose by 2.4% to over $300,000.

There was an increase of 7,000 people in a year, taking the average house price in England to $305,000, compared to $216,000 in Wales, $192,000 in Scotland and $185,000 in Northern Ireland.

How can I save money on groceries?

If you look in your cupboard, you can already see what you have.

First, go to the discount section and see if they have what you need.

Buy items close to their expiration date for cheaper prices and take advantage of the freezer.

Read more tips here

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