"UK inflation continues to surge higher, coming in stronger than forecast once again, increasing the risk that it will ultimately peak even higher than the 13% figure forecast by the Bank of England."
Inflation saw a monthly rise of 0.6%, compared with no change in July 2021.
CPIH inflation, which includes owner occupiers' housing costs, rose by 8.8% in the 12 months to July, up from 8.2% in June.
The largest contributions to rising inflation in July were rising food prices as well as electricity, gas and other fuels.
Luke Bartholomew, senior economist at abrdn, commented: “UK inflation continues to surge higher, coming in stronger than forecast once again, increasing the risk that it will ultimately peak even higher than the 13% figure forecast by the Bank of England. Every upwards inflation surprise tightens the bind the BoE finds itself in, with mounting inflation pressure combined with growing recessionary headwinds. Given the strength of underlying inflation pressure we continue to expect the Bank to deliver another 0.5% interest rate increase at its next meeting.
“With monetary policy having to tighten even in the face of bad economic news, investors continue to have little in the way of a safety net from central banks, which is likely to keep markets volatile.”
Simon Jones, CEO of financial comparison website InvestingReviews, said: “Inflation is running wild and refusing to be tamed by the clear direction of travel being set by a succession of interest rate rises. Households need to buckle up and brace themselves for more expensive goods and services and higher borrowing costs for the next few years at least.
“CPI has not only risen by a big margin, it has wrong-footed the experts who, on balance, thought it wouldn’t break the psychologically important 10% barrier so soon. Inflation hasn’t been this high since the early 1980s. This makes a bigger interest rate hike at the next MPC meeting more certain, which in turn makes recession at the end of the year more likely.
“While the UK is yet to see the impact of the latest interest rate hike from early August, a weak response from here will signal that the Bank of England’s worst nightmare could be becoming reality. If inflation becomes embedded in the economy, then it may be that rates have risen too slowly to cool demand sufficiently and no amount of hosing down the credit markets will put a stop to straining pay demands and rising prices. With war and high energy prices skewing the picture and fogging up rate-setters glasses, they do have an unenviable task navigating between a deep recession and an overheating economy.
“Banks and building societies are also going to be coming under increasing scrutiny because it’s clear they are not passing on interest rate rises to savers quickly enough. Almost none of them have passed on the entire 0.5% hike introduced earlier this month, though mortgage rates seem to rise instantly. Consumers are fed up of seeing providers take with both hands.”
Debapratim De, senior economist at Deloitte, commented: “With inflation above 10% and widely expected to rise further as energy bills increase, base interest rates look fairly low at 1.75%. We expect swift action from the Bank of England with the base rate potentially doubling by this time next year.
“As the Bank moves aggressively to crush double-digit inflation, we are forecasting a 1.6% contraction in activity between this autumn and the next. This is a much smaller contraction than the pandemic but, with a sharp squeeze on consumer spending power and likely rise in unemployment, will feel significantly disruptive.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, added: "The relentless rise upwards in prices continues, with little sign of a break for consumers who are desperately trying to make ends meet. Inflation has now hit double digits, a painful financial milestone but the worst is yet to come.
"At 10.1% this is the highest peak for inflation since February 1982 when The Jam were at the top of the charts with A Town called Malice. Right now the Bank of England finds itself in a sticky situation, with little option but to keep raising interest rates to try and lower demand in the economy. Policymakers are in a jam because they know full well that this monetary policy squeeze risks pushing the UK economy into recession, if it isn’t there already. This boiling temperature will mean policymakers won’t easily be able to turn down the heat on those rate rises given their stated determination to put a lid on inflation and bring it back to its 2% target.
"The ONS data indicates that inflation rose more sharply in the UK than other G7 nations like France, Germany, Italy and the US. With more painful hikes in energy bills to come, and prices rising rapidly in supermarkets, many consumers are already having to make some hard choices about how to spend their dwindling budgets. The path is set for a scorching summer of price rises to merge into a pretty awful Autumn and a winter of woe as households struggle against this tide of inflation."
