UK inflation rose to 2.2% in July, after two months at the Bank of England’s 2% target

U.K. inflation rose to 2.2% in July, coming in slightly below expectations but inching back above the Bank of England’s 2% target, data from the Office for National Statistics showed Wednesday.

Economists polled by Reuters had been expecting the headline consumer price index (CPI) to come in at 2.3%.

The headline inflation had come in at 2% in both May and June, in line with the Bank of England’s target rate.

The Office for National Statistics attributed the increase to housing and household services, saying gas and electricity prices had fallen by less than they did a year earlier.

So-called core-CPI — which excludes food, energy, alcohol and tobacco prices — came in at 3.3% in July, down from the 3.5% print of July, the statistics office said.

Meanwhile services inflation, which is closely watched by the Band of England, eased to 5.2% in July, compared to the previous month’s 5.7% reading.

The inflation figures come after data released on Tuesday showed that average pay excluding bonuses increased by 5.4% year-on-year between April and June, marking the lowest rate in two years. The unemployment rate fell to 4.2% over the period, down from 4.4% across March to May.

The data comes after the Bank of England earlier this month cut interest rates for the first time in over four years, taking the key bank rate to 5%. It had previously been held at a 16-year high of 5.25% since August 2023.

The BOE said in its Monetary Policy Report, also released at the start of the month, that it expects CPI to increase again in the second half of 2024.

Uncertainty remains about when the central bank will cut rates again, and whether another cut will even take place this year. The BOE’s Monetary Policy Committee is set to meet three more times in 2024.

Following the inflation data release of Wednesday, markets were pricing in an around 55% chance of the BOE keeping rates unchanged in September, while the odds of a cut next month rose slightly, LSEG data showed. Meanwhile, expectations for a November rate trim hiked to more than 90%.