The Consumer Prices Index (CPI) inflation rate increase by 0.2 percentage points to 2.2 per cent in the 12 months to July 2024, the Office for National Statistics (ONS) has revealed.

The increase was primarily driven by the prices of gas and electricity falling by less than they did last year, although this was partially offset by a reduction in the prices of restaurants and hotels after they rose last year.

Core CPI, which excludes energy, food, alcohol and tobacco, was 3.3 per cent in the 12 months to July, down from 3.5 per cent in June.

Fidelity International associate director for personal investing, Ed Monk, argued that a rise in headline inflation was less important than the easing in core inflation, which suggested that the trajectory for price rises was still downwards.

“Easing wage rises reported yesterday point to a similar trend and suggest we remain on track for further cuts to interest rates in the months ahead,” he continued.

“The expected level of interest rates has been falling, with one more cut in 2024 predicted and markets now expecting rates to dip below 4 per cent towards the end of next year.

"Lower rates have tended to be positive news for stock markets, but investors should always be aware of the wider picture - rates are coming down because there is less momentum in the economy.

“The Bank of England has begun to ease monetary policy and will be watching growth data closely for signs of a more sudden slowdown that could accelerate the timetable for rate cuts.

“As rates fall cash will become less attractive. Many investors have sought the safety of cash deposits this year as rates have stuck above the rate of inflation, but they may be forced to reassess as interest rates falls. Bonds, which have disappointed for some time, may become more attractive if cuts come through more quickly.”

Forvis Mazars chief economist, George Lagarias, agreed that inflation ticking up would probably not discourage the bank from further rate cuts.

“Despite the uptick, all key measures, headline, producer prices and services inflation rose less than anticipated by markets,” he stated.

"The global economy is evidently slowing, which means that price pressures should continue to subside. Having said that, even at a reduced pace, services inflation is still too high for comfort.”

However, Standard Life managing director for retail direct, Dean Butler, said that inflation moving above the Bank of England’s target of 2 per cent could lead to the bank taking a more cautious approach on further interest rate cuts.

“As a result, there’s a chance we could see some of the best easy-access savings deals sticking around a while longer,” he noted.

“However, it’s still worth shopping around for the best deal now as the Bank of England expects inflation to fall next year, which could result in quicker moves to reduce interest rates. It’s also worth mortgage holders coming to the end of fixed rate deals keeping a close eye on new deals coming to the market, if they’re thinking of refixing.

“When looking for the best savings deal, people with a greater appetite for risk could consider investing into a product like a stocks and shares ISA which has greater potential for substantial returns. People able to take a long-term view could consider topping up their pension, increasing the potential for a build-up of compound investment growth over the years and taking advantage of pensions tax efficiency.”

Charles Stanley Direct chief investment analyst, Rob Morgan, described the past few months as a “cruel summer” for the Bank of England, as services price inflation “refuses to budge” from 5 per cent.

“Driven by air fares, package holidays, and hotel prices, so-called ‘Swiftonomics’ has contributed to the first headline increase to inflation this year, buoyed by a strong jobs market and steady wage growth,” he said.

“This casts a shadow of doubt over further rate cuts in the coming months. Britain’s cohort of DIY investors were divided last month on the direction of travel for UK inflation, but most saw this increase coming. Many will have made decisions accordingly, both within their investment portfolio and their household budgets.

“This could include increasing their exposure to equities to ensure their investments outpace cash returns, ensuring they’re on the best mortgage rates, and hunting down the best cash savings rates. As ever though, it’s time in the market, not timing the market - a diversified long-term portfolio will best protect against economic ups and downs.”

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