UK inflation has risen for the first time in more than a year, with the annual rate in July climbing back above the Bank of England’s target of 2%.

The rate of inflation grew to 2.2% in July, up from 2% a month earlier, data from the Office for National Statistics (ONS) showed.

It is the first time consumer prices index (CPI) has risen since last December after the Bank of England raised interest rates to 16-year highs to bring down inflation, which hit a peak of 11.1% in October 2022.

Core CPI — which strips out food and energy costs — rose by 3.3% in the 12 months to July 2024, down from 3.5% in June.

The closely-watched annual rate of CPI services price inflation fell to 5.2% in July, down from 5.7% in June, its lowest rate since June 2022. However, that figure remains higher than in the neighbouring eurozone.

The ONS said that the largest upward contribution to July’s change in inflation came from housing and household services as prices of gas and electricity fell by less than they did last year.

The inflation rate for food and non-alcoholic beverage prices remained at 1.5% per year in July. That matches June’s reading, which was the joint lowest annual rate since October 2021.

The largest downward contribution came from restaurants and hotels, as prices of hotels fell this year having risen last year.

ONS chief economist Grant Fitzner said: “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago.

“This was partially offset by hotel costs, which fell in July after strong growth in June.

“The increase in cost of goods leaving factories slowed a little in the year to July, led by falling petrol prices.

“Meanwhile, raw materials prices picked up for the first time in over a year, driven by smaller falls in gas and electricity costs.”

Read more: Where to invest your money when interest rates are falling

A rise in inflation shouldn’t create "panic stations" at the Bank of England, according to Steve Matthews, investment director, liquidity at Canada Life Asset Management.

“Wage data continues to fall and unemployment remains above recent lows,” he said.

“The Monetary Policy Committee (MPC) have indicated that they fully expect bumps in the road along the way and, although this data will be a cause for wariness, it shouldn’t deter them from cutting borrowing costs in the near future,” he added.

The Bank of England tends to cut interest rates as inflation comes down towards its 2% target. It cut rates from 5.25% to 5% earlier this month after holding them at this level for a year.

Governor Andrew Bailey struck a cautious tone earlier after announcing the first cut in interest rates.

“We need to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much,” Bailey said.

Read more: How to manage the cost of university

According to a Bank of England forecast released earlier this month, inflation will rise to 2.75% by the end of 2024 and stay high for the foreseeable future.

The latest rise in inflation is likely to set the tone for the Bank of England’s next interest rate decision in September. Money markets now indicate that there’s a 45% chance that Bank Rate is cut to 4.75% next month, from its current level of 5%, and a 55% chance that borrowing costs are unchanged.

Capital Economics said: "Importantly for the Bank of England, the decline in services inflation from 5.7% to 5.2% was much bigger than anyone anticipated. That was well below the 5.6% rate forecast by the Bank in August, although closer to our own forecast of 5.4%."

Chief secretary to the Treasury Darren Jones said: “The new government is under no illusion as to the scale of the challenge we have inherited, with many families still struggling with the cost of living.

“That is why we are taking the tough decisions now to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off.”

Download the Yahoo Finance app, available for Apple and Android.