Inflation on the rise again

From a peak of 11.1% in October 2023, inflation began to fall, eventually reaching the 2% target in May 2024. June stayed at 2%, but now, in July, figures show an increase to 2.2%. It's not significant, but in an ever-cautious environment, it's not good news either.  An increase wasn't unexpected, though, and it's slightly less than predicted.

What's causing the increase?

The reason is the pace at which prices are rising. In particular, energy prices have not fallen as far as expected compared to last year. Both gas and electricity prices are higher, which impacts raw material costs.

Hotel and restaurant prices did come down a little, as did services inflation, which has been a concern as it's been trending higher than many other areas lately.  Although it's still not coming down as swiftly as anticipated.  

Expectations are that inflation will rise as high as 2.75% before coming back down to 2%, but not until 2025.

What about interest rates?

The Bank of England warned not to see a 0.25% decrease at the start of August as the start of a series of cuts.  Despite inflation, many investors and analysts continue to predict a further cut in September of 0.25%.  Although, as always, it depends on who you listen to.  Capital Economics still warns that the rise in inflation may not alleviate fears over persistent price pressure, and that may cause a delay in the next decrease.

At present, based on views across a range of investors and analysts, I believe we will end 2024 at 4.5%. We live in hope; ultimately, we will know at the next MPC meeting on Thursday, September 19th, 2024.