The Bank of England (BoE) is set to face renewed challenges in its battle against high inflation this week, as expectations grow for the first rise in the headline inflation rate this year. Official data is expected to reveal that inflation in July rose above the Bank’s 2% target, potentially reaching 2.3%. This increase comes after two consecutive months at the 2% target in May and June, marking the first rise since December 2023.

The inflation surge is largely attributed to rising costs in air fares, package holidays, and hotel prices. Despite a slower decline in household energy prices compared to last year, inflation in the services sector is projected to remain above 5%, driven by increased demand for travel and accommodation, especially around events like UK music tours.

This uptick in inflation comes after the BoE recently cut interest rates from 5.25% to 5%, the first reduction since the Covid-19 pandemic began. Although inflation has significantly dropped from its peak of 11.1% in October 2022, the Bank is expected to gradually lower the base rate to around 3.5% by the end of 2025.

Meanwhile, economic growth is anticipated to continue at 0.7% for the second quarter, while the job market is expected to show signs of cooling, with rising unemployment and slower wage growth.

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