Inflation is set to rise for the first time in 2024 this week, in new data which highlights the battle facing the Bank of England to keep prices in check.
Economists expect official figures on Wednesday to show that inflation rose above the Bank’s 2% target in July, driven in part by holiday-related price rises for airfares and hotels.
Every month, the Office for National Statistics (ONS) reports the Consumer Prices Index (CPI) inflation figure, which measures the speed prices are rising year-on-year.
Consultancy Pantheon Macroeconomics said it thinks inflation rose 2.3% between July 2023 and 2024, after it held at 2% for the years to May and June.
Rob Wood, Pantheon’s chief UK economist, said: “The price of a one-night hotel stay has been very strong this year, partly reflecting a new seasonal pattern since Covid… as well hotels likely charging a form of surge (demand-based) pricing.
“The ONS surveys only about 100 hotels, which means outliers, such as a Welsh hotel price in June boosted by demand from a Pink concert, can distort the figures,” he said.
“But some hotel price inflation is genuine, as a range of CPI service components related to travel or that are labour-intensive have been strong this year,” he added.
Another factor is energy prices. Bills fell sharply between the first six months of 2023 and of 2024, pulling down the overall inflation figure, but they fell more gradually between July 2023 and this year, meaning it will have less downward impact, ultimately increasing the year-on-year rate of inflation.
Inflation hit a peak of 11.1% in October 2022, after a sharp rise in energy prices sparked by Russia’s invasion of Ukraine.
That prompted the Bank to raise interest rates to a 16-year high of 5.25% last year, which it only cut this month, in a quarter point drop to 5%.
But governor Andrew Bailey struck a cautious tone on further cuts, and many economists believe rates will be kept unchanged when the committee next meets in September.
The Bank has said it expects inflation to rise to about 2.75% in the second half of this year, amid persistent price rises in the service sector and strong wage growth across the jobs market.
Inflation will then fall back over the subsequent years to 1.7% in 2026, it predicted earlier this month, then down to 1.5% in 2027.
Catherine Mann, a ratesetter at the Bank, said in a recent interview that the UK should not be “seduced” into thinking inflation will stay low over the coming year.
Ms Mann, an external member of the Bank’s Monetary Policy Committee, said she is concerned that inflation could rise again soon, pointing to survey evidence that suggests companies expect to increase wages and prices.
UK earnings growth fell to 5.4% year-on-year for the three months to June, according to official data on Tuesday, down from 5.7% in the previous three months.
