More inflation rises expected after first increase this year

Britain's annual inflation rate rose to 2.2% last month - its first increase since December last year and is expected to remain above its 2% target for the rest of the year.

- Larry Elliott, Graeme Wearden

Figures from the Office for National Statistics (ONS) showed that the government's preferred measure of the cost of living climbed again as domestic energy bills fell by less last month than in July 2023.

Gabriella Dickens, G7 economist at AXA Investment Managers, said July's rise was not a one-off. "The headline rate will rise again over the next few months, as the sharp declines in energy prices in 2023 are not repeated. We expect inflation to end the year marginally in excess of 2.5%," she said.

The Bank said earlier this month that it expected the consumer prices index measure of inflation would continue rising and peak at about 2.75% before falling back.

Despite the prospect of inflation continuing to rise in the coming months, July's increase was slightly smaller than the rise to 2.3% anticipated by the financial markets, and prompted speculation of possible back-to-back interest rate cuts when Threadneedle Street's monetary policy committee meets next month. Borrowing costs were cut from 5.25% to 5% this month.