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Labour is set to face another early financial blow with inflation expected to rise for the first time this year.
Official figures to be released on Wednesday are forecast to show that inflation rose above the Bank of England’s target of 2 per cent in July.
Consultancy Pantheon Macroeconomics expects the rate to go up to 2.3 per cent between July 2023 and 2024, after it held at 2 per cent for the years to May and June.
Wage growth, energy bills and holiday-related price rises for airfares and hotels are among the factors behind the expected rise in inflation.
Inflation measures the increase in prices over time.
When the rate is high, the value of the British pound declines further, which leads to a reduction in consumers’ purchasing power.
News of a rise in inflation would highlight the battle faced by the Bank of England and the new Labour government to keep prices in check.
Chancellor Rachel Reeves has already delivered a stark warning over the economy, highlighting a £22 billion black hole in public finances last month.
In a statement to Parliament last month, she outlined longer-term plans to fix the foundations of our economy.
Factors behind predicted rise in inflation
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.
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% in October 2022, after a sharp rise in energy prices sparked by Russia’s invasion of Ukraine.
Alex Ross13 August 2024 20:30
Economists forecast inflation to rise for July
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.
Alex Ross13 August 2024 19:30
What is inflation?
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.
Alex Ross13 August 2024 18:30
Welcome
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.
Alex Ross13 August 2024 17:19
