Inflation warning: CPI rate forecast to RISE tomorrow in blow to Labour

Since May, inflation has remained at two per cent following consecutive rate hikes from the central bank over the last two years. However, this trend looks likely to be reversed due to summer-related price hikes affecting airlines and hotels.

This comes as Chancellor Rachel Reeves has pledged to revitalise the economy since taking over the Treasury after Labour's landslide victory last month.

Each month, the Office for National Statistics (ONS) reports the CPI inflation figure which measures how much prices are rising annually.

According to Consultancy Pantheon Macroeconomics, inflation jumped 2.3 per cent between July 2023 and 2024.

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Rob Wood, Pantheon’s chief UK economist, outlined why this scenario is likely to become a reality.

He explained: "The price of a one-night hotel stay has been very strong this year, partly reflecting a new seasonal pattern since Covid… as well hotels likely charging a form of surge (demand-based) pricing.

"The ONS surveys only about 100 hotels, which means outliers, such as a Welsh hotel price in June boosted by demand from a Pink concert, can distort the figures,” he said.

"But some hotel price inflation is genuine, as a range of CPI service components related to travel or that are labour-intensive have been strong this year."

One of the other factors contributing to inflation in recent years has been the sharp rise in energy prices.

In the first six months of 2023 and 2024, energy bills fell sharply which brought down the overall CPI rate.

However, energy costs have slipped more gradually between July 2023 and this year which results in a less downward impact.

Inflation in the UK reached a peak of 11.1 per cent following Russia's invasion of Ukraine.

In response to this, the Bank of England raised interest rates to a 16-year high of 5.25 per cent and only made the decision to cut it to five per cent last month.

Despite rates being cut, Governor Andrew Bailey cautioned that further cuts may take longer to be implemented.

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Lydia Pried, the head of economics at NEF, refused to rule out further interest rates and broke down how they have impacted consumers.

She said: "High interest rates have driven people into mortgage arrears, and made it more expensive for our Government and businesses to make vital investments, including in things like fighting the climate crisis.

"And they aren’t responsible for cutting inflation, which was determined by international factors outside the Bank’s control.

"The cost of living is still sky high and energy bills are due to go up in a few months."