The Consumer Prices Index (CPI) rose by 2.2% in the 12 months to July 2024, up from 2% last month.
Despite the increase, inflation was still lower than the 2.3% forecast and well below the recent peak of 11.1% in October 2022.
It was driven mainly by housing and household costs, specifically energy costs.
It’s not that energy costs are rising steeply – they’re not – but that they fell so sharply a year ago, which is impacting the annual inflation rate. Monthly gas and electricity prices fell by 7.8% and 6.8% respectively in July 2024, far less than their equivalent falls in July 2023 (25.2% and 8.6%), and annual figures showed a similar pattern.
Impact on mortgages
The last two weeks have seen a slew of mortgage rate cuts, with many lenders now offering sub-4% rates.
These reductions follow the Bank of England cutting its base rate to 5% from 5.25%.
This latest uptick in inflation is unlikely to have a great impact on mortgage rates, especially as economists were predicting a larger rise.
David Hollingworth, associate director at L&C Mortgages, explained: “An increase in the rate of inflation, departing from the Bank of England’s target rate of 2%, is never going to be good news. However, a slight rise was expected and the tick up to 2.2% in July is a little less than many had expected.
“Mortgage rates had already been edging down, but the bank’s cut came earlier than many had expected and has helped to drive down costs for lenders.
“That direction of travel is unlikely to be disturbed by reaction to today’s news and the market will have been well prepared for an increase. Instead, we’re likely to see continued and frequent movements in mortgage rates, as lenders continue to adjust and improve where they can.”
Nathan Emerson, CEO at Propertymark, added: “The pathway to a strong and stable economy does come with ups and downs along the way, so today’s fluctuation, while disappointing, is an unfortunate but accepted part of the process.
“Households remain in a stronger position than only 12 months previous, but there is potential the Bank of England may reflect on today’s figures very carefully when the Monetary Policy Committee next meet to decide on interest rates.
“While Propertymark is keen to see a further lowering of interest rates, it’s essential to bear in mind this process must be carefully considered to keep the economy firmly on track.”
