Inflation rises to 2.2% – business industry reaction

The UK’s inflation rate has risen for the first time this year as annualised inflation came in at 2.2% in July, higher than the 2.0% reported in June.

Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.3% (down from 3.5%) and services inflation fell from 5.7% to 5.2%.

Commenting on the inflation figures, ONS Chief Economist Grant Fitzner said “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago. This was partially offset by hotel costs, which fell in July after strong growth in June.

“The increase in cost of goods leaving factories slowed a little in the year to July, led by falling petrol prices. Meanwhile, raw materials prices picked up for the first time in over a year, driven by smaller falls in gas and electricity costs.”

Anna Leach, Chief Economist at the Institute of Directors, said “Today’s rise in inflation is in line with expectations and so doesn’t change the outlook for interest rates. Inflation is expected to remain a bit above target over the coming months, as energy prices are no longer falling on the year, and services price inflation remains elevated, so we may only see one more small rate cut at best this year. But inflation should moderate further out, supporting further cuts in interest rates. The latest labour market data was promising on that front, showing private sector regular wage growth dropping below 5% for the first time in more than two years and vacancies down again.

“Looking to the Autumn, all eyes are on the government to make good on its positive messaging on stability and growth. To fundamentally drive up growth without stimulating inflation, we need much higher investment alongside greater participation in the labour market. We look forward to working with the government to ensure that moves to improve the quality of work, preserve and enhance the UK’s standing as a nation with a high quality, flexible labour market.”

Andrew Lilico, Economics Fellow at the Institute of Economic Affairs, said “Today’s inflation figures support the case that the Bank of England has been too slow in cutting rates. Services inflation, which the Bank has overemphasised in its thinking, is down sharply from 5.7 to 5.2% in the year to April. Concerns about price rises in hotels and restaurants in the year to June proved short-lived, falling back in July. Core CPI was down from 3.5 to 3.3%. A slight rise in headline CPI (from 2.0% to 2.2%) was expected as a result of movements in energy prices.

“Overall, the picture indicates that inflation is likely to undershoot the Bank’s expectations and supports the IEA’s Shadow Monetary Policy Committee’s long-held case that concerns about inflation being persistent based on a wage-price spiral are misplaced.

“Just as the Bank was too slow to raise raises as inflation rose, failing to see the clear signs there were in the monetary data, so as inflation has fallen it has been too slow once again, allowing monetary growth to be too low for too long and failing to grasp its significance. This is unnecessarily impeding growth at a time the economy should be seizing the opportunity for investment in emerging new technologies.

“Failing to take full advantage of this moment could mean a lasting failure to boost UK growth – a boost that is sorely needed.”