UK inflation rose to 3.8% in July, driven by higher food and travel costs, dampening hopes of further interest rate cuts from the Bank of England.
The consumer prices index (CPI) climbed from June’s 3.6% and exceeded expectations of 3.7%. It has remained above the Bank’s 2% target for ten consecutive months. The latest figure reduces the chance of another reduction in borrowing costs this year, with financial markets not fully pricing in a further quarter-point cut until spring 2026.
Transport and food made the most significant contributions. Air fares surged 30% month on month, partly due to the timing of the summer holidays. Petrol prices added to the increase compared with last year, when pump prices were falling. Food and non-alcoholic drinks rose 4.9% yearly, up from 4.5% in June. Beef, coffee, chocolate and orange juice were among the worst affected, while droughts in southern Europe pushed up fruit and vegetable prices.
The retail prices index (RPI) rose to 4.8%, which suggests a 5.8% increase in regulated rail fares next year.
The Government faces added pressure in public sector pay talks, as unions are expected to push for higher wages in response to rising household costs.
Economists said the chances of a cut this year were slim but not impossible. The National Institute of Economic and Social Research predicts inflation will decline in 2025 and fall back to the 2% target by the end of 2026.
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