UK inflation rose to 3.8% in July, up by 0.2% from June, according to recent data from the Office for National Statistics (ONS), thanks largely to an increase in transport costs.
The largest contributor to the steep rise in the consumer price index (CPI) was the annual rate of airfares, which jumped by 30.2% between June and July.
Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that this was the biggest bump in transport prices in the past 24 years. However, she conceded that this rise is primarily the result of the summer holidays, with return flights being a major factor in the data.
Food inflation was also a major contributor, rising for the fourth consecutive month to 4.9% – the highest level in more than a year. Lindsay James, investment strategist at Quilter, attributed this partially to businesses accounting for the rise in national insurance and the living wage.
Experts noted that these higher-than-expected inflation figures leave questions about the potential for further rate cuts this year, particularly with expectations that inflation could peak at 4%.
For James, weak growth and fragile UK employment could enable the Bank of England (BoE) to make one further interest rate cut this year, but if inflation continues its “march upwards”, policy decisions may need to be backtracked.
Danni Hewson, head of financial analysis at AJ Bell, said the hike in service inflation and a cooling labour market “makes it increasingly likely that we’ve seen the last cut for 2025”.
This is a shift in sentiment from earlier this month, when the Bank of England cut rates to 4%. At the time, experts suggested there would likely be more cuts this year, although the timing was far from guaranteed.