The UK’s annual inflation rate saw a resurgence in July, marking the first increase this year and surpassing the Bank of England’s target, according to official data released on Wednesday. The Consumer Prices Index (CPI) climbed to 2.2 percent in the 12 months leading up to July, compared to a 2.0 percent annual gain in June, as reported by the Office for National Statistics (ONS).
This upward trend was primarily attributed to a slowdown in the decline of gas and electricity prices compared to the previous year. The ONS highlighted that these energy costs were a key factor in the inflation rise.
The accelerated inflation rate has raised concerns among analysts about the Bank of England’s future monetary policy decisions. The BoE had recently cut borrowing costs for the first time since the onset of the Covid-19 pandemic, following a retreat in UK inflation from its four-decade high towards the 2% target. However, the latest inflation data suggests that the BoE may need to exercise caution before implementing further interest rate reductions.
Ruth Gregory, deputy chief UK economist at Capital Economics, observed that Wednesday’s data might not completely alleviate the Bank’s concerns about persistent price pressures. She stated that the rise in inflation might not be sufficient to prompt a back-to-back interest rate cut in September.
Despite these uncertainties, Gregory expressed her expectation that the BoE would still lower interest rates again this year, bringing its main interest rate down to 4.5 percent from the current 5.0 percent. The Bank’s future policy decisions will depend on a careful assessment of the evolving economic landscape and the trajectory of inflation in the UK.
