Economists anticipate that inflation will take a further step up, reaching around 3.5% later in the year. This comes despite energy prices not being as aggressive as initially feared since the war in Iran erupted.
Food inflation is currently at 1.3%, marking its lowest level in close to five years. This muted food inflation, alongside flat jobs data and moderate wage growth, may lead the Bank of England to believe that price pressures remain contained.
Existing energy cost pressures may push up food and other prices at a faster pace in the coming months as they take time to pass through supply chains. While energy bills are expected to rise in October, current forecasts suggest they will be nearly £1,000 less than the peak after the Ukraine war began.
Some analysts suggest interest rates may not rise this year, though risks remain if inflation accelerates unexpectedly. Lingering price pressures in areas like services also pose a danger of inflation rising more than expected later in the year. The conflict in the Middle East continuing is considered the biggest risk, potentially causing further upheaval in energy markets and pushing inflation higher than anticipated.