UK inflation – live: Labour face battle with rate set to rise above 2% target in first increase of the year

Catherine Mann, a ratesetter at the Bank of England, 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.

Speaking to the Economics Show with Soumaya Keynes podcast this week, she said: “There was a lot of new wage agreements in April this year. There will be wage negotiations next year, which will be in relationship to the negotiations that just happened. So some people at the bottom got quite a bit of an increase, rightfully so.

“But the ones above them didn’t, which means next year they will, because it’s important to keep relative wages within a hierarchical structure, kind of in relationship to each other.”

Although a small rise in inflation is not always seen as a bad sign for economy growth, Labour will likely want the rate to stay at the Bank of England’s 2 per cent target.

It’ll be interesting to hear Ms Reeves’ response if inflation has gone up, as expected.

Economists expect official figures on Wednesday to show that inflation rose above the Bank’s 2% per cent target in July, driven in part by holiday-related price rises for airfares and hotels.

nother 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 per cent in October 2022, after a sharp rise in energy prices sparked by Russia’s invasion of Ukraine.

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.

The Bank of England (BoE) defines inflation simply as a term used by economists to “describe the increase in prices over time”.

Rising costs of goods and services on the UK high street indicate that the value of the British pound is in decline, which in turn means a reduction in consumers’ purchasing power and therefore their quality of life, as they are discouraged from spending more than they can afford.

This in turn eats into national economic growth.

Good evening, and welcome to our inflation blog that will cover analysis and reaction to the figures that are due to be released on Wednesday.