Analysts anticipate further gradual increases in inflation through the second half of 2024. Peter Arnold, EY UK chief economist, said: “A smaller drag from the energy category added almost 0.5ppts to the headline rate in July, with last month’s 7% cut in the Ofgem price cap less than half of the fall seen in July 2023.

“But this upward pressure was offset to a certain extent by lower services inflation, which partly reflected the unwinding of June’s unusual rise in hotel prices.

“The outturn for services inflation in July was 0.4ppts below the Bank of England’s new staff projection of 5.6%. However, the EY ITEM Club is sceptical that this will shift the dial on the outlook for interest rates. Minutes of recent MPC meetings have indicated that the dovish majority feel they now have a better understanding of the inflation generation process and are placing less weight on backward-looking measures such as services inflation.

He continued: “Having overlooked recent overshoots for services inflation, the EY ITEM Club would expect the MPC to treat undershoots in the same way and maintain the gradual pace of loosening signalled at the August meeting. The EY ITEM Club expects the MPC will vote to keep Bank Rate at 5% in September, before delivering another 25bps cut in November.

“The EY ITEM Club expects CPI inflation will gradually drift upwards throughout the rest of H2 2024. Services inflation should continue to cool as businesses pass on the gains from lower energy costs to their consumers. However, this is likely to be more than offset by the fading drag from the energy category.”

Kevin Brown, savings specialist at Scottish Friendly, said: “Today’s inflation reading, while not welcome, was largely expected.

“The Monetary Policy Committee (MPC) made clear when it announced the first rate cut at the start of the month that its strategy of keeping rates high had helped return inflation to target. However, it also said that it expected a temporary rise in inflation this year. It has just arrived early.

Mr Brown added: “This is an anticipated headache for the MPC but it also presents a conundrum for households looking to grow their financial resilience through savings and investments. With rates likely to remain high for longer, households will be doing the mental maths to see whether those high rates are enough to offset the inflationary drag on the real terms value of their nest eggs if they remain in cash. Or whether now is the time to invest in stocks and shares using a tax-efficient wrapper in order to provide the best possible chance to mitigate against the erosion of inflationary and fiscal drag.”