The Consumer Prices Index (CPI) measure of inflation is now at the highest level it has been for over 18 months. The figure was 4 per cent last January and 3.6 per cent in the last reading in June.
The figure released today is well above the Bank’s 2 per cent target level.
This was the fourth consecutive increase in the annual rate and the highest recorded since February 2024, but remains well below the peak seen in early 2023.
Inflation is widely expected to stay high this year, but economists are divided on how high it will reach.
But others, such as economist Andrew Sentance, believe that it could go higher than 4 per cent, potentially as high as 5 per cent.
What does it mean for interest rates?
Higher inflation means prices are rising quicker than otherwise, and this can prompt the Bank to keep interest rates higher for longer.
Even though inflation is still well above the Bank’s 2 per cent target, there is a chance interest rates could be cut again later this year, though it hangs in the balance.
A cut in September is very unlikely, but the chance of a cut at the next meeting is at around 40 per cent, according to traders’ bets.
Mortgages are not directly affected by inflation, although many products are affected by the Bank’s base rate, which inflation influences.
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Savings
The effects of inflation on the Bank’s interest rate also affects savers, because of the base rate’s influence on savings rates.
For example, Chase offers an easy access accounts worth 4.75 per cent for current account holders – well above inflation – though this includes a temporary bonus rate.
Trading 212 offers a cash ISA account paying 4.42 per cent, though this also includes a temporary bonus.
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