UK inflation at 3.8% in July

July CPI comes in hotter than expected, complicating the Bank of England’s path for rate cuts.

UK inflation climbs to 3.8% on higher food prices

The Office for National Statistics shows the July consumer price index at 3.8% year on year, up from 3.6% in June and above economists’ 3.7% forecast. The rise was driven by air fares, which jumped after the peak summer travel period, with UK-bound flights up about 30% month on month, and by food and non-alcoholic beverages, which rose 4.9% from a year earlier. Rail fares are expected to rise next year due to the typical linkage to the price index, while petrol prices also contributed to the increase.

Energy price pressures loomed as Cornwall Insight warned the energy price cap could rise again in October, potentially about £17 or 1%. The Bank of England cut rates to 4% earlier this month, but several policy makers voted to hold, signaling uncertainty about the speed and timing of further easing. Analysts say the July surprise makes a fresh rate cut unlikely this year and pushes bets for the first cut into 2026. Droughts in Spain, Italy and Portugal have lifted prices for fresh fruit and vegetables, adding to the broad price pressures that the economy faces.

The data underline that inflation is broad-based, not a single driver. Food, transport and energy costs all show strength while comparisons to last year’s energy prices dampen the drop in overall inflation. That mix weighs on household budgets and tests the BoE’s credibility as it weighs growth against price stability. The central bank must balance the risk of keeping rates too high and stalling recovery with the danger of letting inflation drift further above target. The political and public response will hinge on how quickly prices ease and whether policymakers can sustain confidence in a gradual, data-driven path.

Highlights

The inflation story is far from over, and the policy clock will keep ticking.