UK inflation rises again in new misery for households as costs rise
UK households have been hit with another cost of living blow as inflation has risen again.
The level of inflation for the 12 months to July was 3.8% - this is higher than the 3.6% that was recorded in June. The majority of analysts had expected inflation to rise slightly, reports the Mirror.
Inflation data is published every month by the Office for National Statistics (ONS). There is a target of 2% which the Bank of England is tasked with maintaining.
The main tool the Bank of England has to keep inflation under control is changing its base interest rate, which is currently at 4%. Interest rates were cut to this level at the last Bank of England meeting earlier this month.
What is inflation?
Inflation shows how the price of goods and services have changed over time. The Consumer Price Index (CPI) is the main measure of inflation.
The ONS calculates inflation based on a regularly updated "basket of goods" and services that represents what households are buying. However, the main CPI figure you see in headlines is used to represent an average.
This means the individual prices of some goods may be higher or lower than this main figure. When inflation is lower, it does not mean prices have stopped rising - it just means they're going up at a slightly slower rate than before.
For example, if the rate of inflation is 3% then it means an item that cost £1 last year would now cost £1.03.
How is inflation linked to interest rates?
The Bank of England increased interest rates over the course of almost two years to try and lower inflation to its 2% target. The base rate influences the interest rate you're offered by banks and lenders.
When it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere. When people spend less money, this brings down demand and lower prices, which should then lower inflation.
But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched. The base rate stood at just 0.1% in December 2021.
When did inflation reach a peak?
Inflation began to rise in 2021 and peaked at 11.1% in October 2022. The steady increase was largely due to higher costs of energy and food.
Demand for energy increased after Covid and then this was exasperated by the Russian invasion of Ukraine. The war also pushed up food prices, due to rising costs for fertilisers and animal feed.
Inflation fell to its lowest level in three years in September 2024 when it dropped to 1.7% but it started to creep up again the following month in October.
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