UK inflation rose to 2.2% in July, up from 2% and slightly lower than experts’ predictions of 2.3%.

While this is the first increase in inflation since December 2023, it was anticipated, as the Bank of England (BoE) forecasts inflation will hit 2.75% in the second half of 2024. This increase is expected to be driven by a strong jobs market and service sector pay rises.

However, inflation is anticipated to fall again in 2025 and 2026. It’s important to note that currently, with inflation at 2.2%, it is not far off the BoE’s 2% target.

Inflation rose due to the price of gas and electricity decreasing by a lower amount compared to the same time last year.

Based on the latest inflation data, many experts believe the BoE may cut the base rate further from September instead of November after reducing it from 5.25% to 5% earlier this month.

However, this remains to be seen – and not everyone is convinced.

Laura Suter, director of personal finance at AJ Bell believes that expectations of another rate cut could be ‘dampened.’

“While there are lots more things to consider before the Monetary Policy Committee (MPC) meets, this week of a flurry of data about the state of the UK has so far not done much to raise hopes of another imminent rate cut,” comments Suter.

What higher inflation means for savers

As inflation has increased, top savings rates may stay for longer, but it’s worth stressing that the BoE’s base rate cut has already led some providers to reduce their rates.

Inflation is 2.2% while top savings rates are around 5%. Savers can still easily beat inflation if they opt for a competitive savings account, so their money doesn’t lose value in real terms.

It’s a good idea to consider one of the best fixed-rate savings accounts now to access a competitive rate for a set period of time, as savings providers aren't unwilling to reduce rates with little warning.

What higher inflation means for homeowners

Homeowners have had a difficult time over the last few years as mortgage rates have been volatile, rising and falling without much warning.

Over the last few months, the situation has improved, with many lenders now offering fixed-rate mortgages at under 4%. The base rate cut has largely driven this shift.

While mortgage rate reductions may continue, it’ll likely be driven by another base rate cut, which could be as early as September. This is quicker than anticipated as inflation has risen less than forecast. 

What higher inflation means for annuities

If you’re retired or hoping to quit working soon to enjoy your golden years and are considering an annuity, it’s wise to evaluate the impact of the base rate on annuity rates.

In June, lifetime annuity rates exceeded 7% for a healthy 65-year-old, according to Standard Life’s annuity rate tracker.

Base rate hikes have driven generous annuity rates, so the recent cut to 5% will likely lead to rates falling this year.

While higher inflation may mean higher rates stick around for longer, the recent shift in sentiment towards another base rate cut happening in September may mean annuity rates are at risk of falling sooner rather than later.

It might be worth considering an annuity while rates are still favourable. You can also get inflation-linked annuities that protect your income from rising prices.

Get expert financial advice 

Whether you’re planning for retirement, buying a home, remortgaging, or investing, it’s worth considering financial advice.

Unbiased can quickly connect you with a qualified financial adviser who can help you get the most out of your money, whether you’re hoping to retire, invest, or plan for your future goals.