UK Inflation: Key Data and Trends
Headline Rate Stays Elevated
The UK's annual inflation rate held steady at 2.2% in July 2024, remaining above the Bank of England's target of 2%. This marks a slight increase from 2% in June but below market expectations of 2.3%.
CPIH and CPI: Different Measures, Similar Trends
The Consumer Prices Index including owner occupiers housing costs (CPIH) also rose by 3.1% in the 12 months to July, indicating a broader increase in living costs.
Both the headline CPI and CPIH measures have been trending upwards in recent months, reflecting rising energy and food prices.
Underlying Drivers of Inflation
- Energy prices: The rising cost of energy, particularly natural gas, has been a major contributing factor to inflation.
- Food prices: Food prices have also risen significantly, driven by supply chain disruptions and adverse weather.
- Brexit impact: The UK's exit from the European Union has contributed to trade frictions and higher import costs, further pushing up inflation.
Impact on Consumers and Businesses
Elevated inflation erodes the purchasing power of consumers, making it more expensive to buy goods and services.
For businesses, rising inflation can lead to higher input costs and lower profit margins.
Policy Response
The Bank of England is expected to continue raising interest rates in an effort to curb inflation. However, this could slow economic growth and impact consumer spending.
The government has also announced measures to support households facing rising living costs, such as tax cuts and energy price caps.
Outlook and Forecasts
Economists predict that UK inflation will remain elevated in the coming months, with some forecasting it could reach 3% by the end of 2024.
The Bank of England's latest Monetary Policy Report projects inflation to fall back to its 2% target by the end of 2025.
Additional Resources
- Office for National Statistics: Consumer Price Inflation
- Bank of England: Monetary Policy Summary and Minutes
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