Inflation climbs above Bank of England target with rail fares expected to rise by 3.6%

The Office for National Statistics said the UK’s overall measure of inflation, the Consumer Prices Index, rose to 2.2 per cent in July, up from 2 per cent in June.

This means price rises have ticked above the Bank of England’s target, but are still at a slower rate than in 2022 and 2023 when inflation hit 11.1 per cent.

While it represents the first time inflation has climbed since December, most economists had predicted a sharper rise, driven by a drop-off in the effect of falling energy bills on this month’s figures.

Grant Fitzner, chief economist at the ONS, said: “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago.”

However, inflation in the services sector – things like hospitality and culture – provided a welcome surprise, slowing to 5.2 per cent for the year to July, down from 5.7 per cent the previous month and more than expected. The slowdown came from a sharp drop in hotel prices between June and July.

Bank of England policymakers watch services inflation closely when trying to figure out how much domestic prices are rising.

The sharp drop in this area last month has led some economists to predict more interest rate cuts by the Bank, after the Monetary Policy Committee made a quarter point reduction to 5 per cent earlier this month.

Sanjay Raja, chief UK economist at Deutsche Bank Research, said: “A September rate cut should no longer be off the table. And it’s entirely conceivable to think that we could get multiple more rate cuts this year.”

George Sweeney, of personal finance site finder.com, added: “This slight uptick in the inflation reading was predicted months ago by the Bank of England.

"I don’t think it’s going to unnerve the Monetary Policy Committee or knock them off course.”

One cost that will rise soon is rail fares, which are traditionally set on the July Retail Prices Index figure.

That was 3.6 per cent and it is likely this will be used to increase regulated fares, although the Department for Transport has not confirmed this yet.

About 45 per cent of fares on Britain’s railways are regulated by the Westminster, Scottish and Welsh Governments.

They include season tickets on most commuter journeys, some off-peak return tickets on long-distance routes, and flexible tickets for travel around major cities.

Train operators set rises in unregulated fares, although these are likely to be very close to changes in regulated ticket prices because the companies’ decisions are heavily influenced by governments due to contracts introduced because of the coronavirus pandemic.

A DfT spokesman said: “No decisions have been made on next year’s rail fares but our aim is that prices are as affordable as possible for passengers.”