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UK inflation rate rises for the first time since December – what it means for your money
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THE UK'S rate of inflation rose in July for the first time since December in a blow for households.
The Consumer Price Index (CPI) measure of inflation hit 2.2% in the 12 months to July, said the Office for National Statistics.
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Economists and analysts had been predicting it would rise to 2.3% last month, meaning the spike is not as bad as anticipated.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: "The good news is that these figures are slightly better than the market anticipated, which the BoE will be very pleased to see."
The recent rise in inflation is the first since December last year, when it increased from 3.9% to 4%.
Inflation is a measure of the cost of the average basket of goods, which means if it is rising, it's bad news for households.
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Grant Fitzner, chief economist at the ONS, said July's increase was due to domestic energy costs.
He commented: "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.
"The increase in cost of goods leaving factories slowed a little in the year to July, led by falling petrol prices.
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"Meanwhile, raw material prices picked up for the first time in over a year, driven by smaller falls in gas and electricity costs."
Inflation has slowed in recent months, hitting the Bank of England's (BoE) 2% target in May and staying there in June.
What is the Bank of England base rate and how does it affect me?
It has also fallen significantly since hitting a peak of 11.1% in October 2022 due to soaring wholesale energy prices.
WHAT IT MEANS FOR YOUR MONEY
Rising inflation indicates that the cost of goods and services is increasing which is bad news for households.
However, Alice Haine, personal finance analyst at Bestinvest, said there was no need to worry too much after today's figures.
She commented: "An uptick in the headline inflation figure can be a worry for consumers as it diminishes spending power and erodes savings, making it harder for people to maintain their living standards.
"However, with inflation still at a significantly lower level than the 11.1% it hit in October 2022, households have no need to panic just yet."
The latest figures will give the BoE something to ponder after it cut the base rate from 5.25% to 5% at the start of the month though.
The central bank raises the base rate to slow inflation, but any rise has a negative knock-on effect on mortgage owners and those in debt.
That's because the base rate is what the BoE charges to smaller high street banks who then pass this on to customers.
Ahead of today's figures, lenders Nationwide and Halifax both cut mortgage rates on fixed deals by up to 0.2%.
They followed a number of other lenders dropping their rates to below 4% in a boon for mortgage owners and prospective home buyers.
But with inflation ticking up to 2.2%, it means the prospect of further cuts to the base rate are unlikely any time soon meaning mortgage rates could stagnate in the short term.
Alice added: "What will be disappointing is the prospect that the next rate reduction may get delayed until later in the year.
"The stronger inflation reading now sits above the Bank of England’s inflation target of 2% causing complications for the central bank as it shifts towards a lower interest rate environment.
"The BoE made its first rate cut at the start of this month, with many hoping for a follow-up in September.
"While a rise in inflation in the final few months of 2024 was expected, as easing gas and electricity bills fell by less than they did last year, a sizeable uplift later in the year could derail plans for further interest rate cuts, prolonging the financial struggle for those grappling with heavy mortgage or debt repayments."
July's Retail Prices Index inflation rate, which was revealed today and was 3.6%, has also historically been used to inform how much train ticket prices will rise each year too.
It was not used in 2022 or 2023, but if it is for 2024, that means train fares will rise by 3.6% next year.
Today's inflation figures have also seen the pound weaken against the dollar in a blow for anyone looking to head to the US on holiday any time soon.
HOUSEHOLDS STILL STRUGGLING
Despite inflation slowing to 2% in the 12 months to June and ticking up only slightly to 2.2% last month, millions of households are still struggling.
Figures from the National Debtline reveal an estimated 6.8million UK adults are struggling to meet day-to-day costs.
Meanwhile, 11.4million people say their financial situation is worsening.
Sarah Pennells, consumer finance specialist at Royal London, said its latest Financial Resilience Report data also showed almost a fifth of people are overdrawn on their bank accounts while the same amount have less than £100 in savings.
Darren Jones, chief secretary to the Treasury, said: “The new Government is under no illusion as to the scale of the challenge we have inherited, with many families still struggling with the cost of living.
"That is why we are taking the tough decisions now to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off."
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Shadow chancellor Jeremy Hunt added: "There is clearly more to be done to keep inflation down.
"The Chancellor must not use this data as an excuse to break her promises and hike up taxes – tax rises she had planned all along."
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we're earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.
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