UK inflation exceeded expectations in July, surpassing the Bank of England’s target rate. The inflation rate for the 12-month period ending in July was 3.8%, up from the previous month’s 3.6%. Economists had anticipated a 3.7% inflation rate for July.
The Office for National Statistics (ONS) reported that inflation is currently at its highest level in a year and a half. The surge was primarily attributed to increased airfare prices during the summer holiday season. Additionally, prices for petrol, diesel, and food also experienced an uptick, indicating a general rise in consumer prices compared to the previous year.
The Bank of England projects that inflation will peak at 4% in September, double its target rate of 2%. To combat inflation, the Bank recently reduced its interest rate to 4% at its latest meeting.
The core inflation rate, excluding food and energy prices, climbed from 3.7% to 3.8%. Grant Fitzner, the ONS chief economist, highlighted the significant increase in airfares as a major contributing factor to the inflation rise, driven by the timing of school holidays. Additionally, fuel and food costs have also escalated.
Chancellor Rachel Reeves emphasized the government’s efforts to stabilize public finances and address the rising cost of living through measures such as raising the minimum wage and expanding social welfare programs. In contrast, Conservative Shadow Chancellor Sir Mel Stride criticized the government’s economic management, attributing the high inflation to tax policies and increased borrowing.
Inflation reflects changes in the prices of goods and services over time, measured by the Consumer Price Index (CPI). The ONS tracks inflation using a basket of goods and services that represent typical household purchases. The Bank of England adjusts interest rates to influence borrowing costs, aiming to control inflation and consumer spending.
Inflation began its ascent in 2021, peaking at 11.1% in October 2022, driven by energy and food price hikes. The conflict in Ukraine further exacerbated inflation due to energy supply disruptions. Despite a temporary decline to 1.7% in September 2024, inflation has been gradually increasing since October of the same year.
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