Annual inflation in the U.K. accelerated to 3.8% in July, outpacing economists’ forecasts and reaching its highest level since early last year, according to figures from the Office for National Statistics (ONS).
Analysts had expected a slightly cooler 3.7% reading, following a 3.6% uptick in June. Core inflation, which strips out volatile components such as energy and food, also climbed to 3.8% year-over-year, edging up from June’s 3.7%.
The increase was driven largely by a significant jump in air fares, attributed to the timing of school holidays, marking the steepest July rise since air fare data was shifted to monthly tracking in 2001. Fuel prices also moved higher compared to a year ago, while food price inflation remained persistent, particularly in categories like coffee, juice, meat, and chocolate.
Services inflation rose to 5% from 4.7% the prior month, adding further pressure for the country as wage growth and higher National Insurance contributions drive up costs for businesses.
U.K. Chancellor Rachel Reeves emphasized that further steps are needed to address the cost of living, pointing out that while public finances have been stabilized and inflation is now well below the double-digit levels seen under the prior administration, ongoing efforts remain necessary.
With this hotter-than-expected print, analysts say the new inflation data poses a hurdle to additional interest rate cuts this year. The Bank of England, which earlier this month narrowly voted 5-4 to trim its key rate from 4.25% to 4%, is now expected to proceed cautiously with further monetary easing.
