UK inflation rose faster than expected in July, hitting 3.8% as higher food prices and rising travel costs put fresh pressure on households. The increase has raised concerns that the Bank of England will delay further interest rate cuts.
The latest figures show the consumer prices index (CPI) climbing from June’s 3.6% reading, remaining above the Bank’s 2% target for the 10th month in a row. Financial markets had forecast a rate of 3.7%, but the overshoot suggests another reduction in borrowing costs this year is unlikely. Markets now expect the next possible quarter-point cut in spring 2026.
Rail passengers are also set to be affected, with regulated fares projected to rise by 5.8% next year. Increases are typically based on July’s retail prices index (RPI), which stood at 4.8%.
According to the Office for National Statistics (ONS), a sharp rise in air fares accounted for much of July’s inflation increase. Ticket prices for flights leaving the UK rose 30% compared with June, largely due to the timing of the summer holiday season. Petrol prices also contributed, adding 0.1 percentage points to inflation compared with last year, when fuel costs were falling.
Food prices were another key driver. Food and non-alcoholic beverages increased by 4.9% year on year in July, up from 4.5% in June. Beef, orange juice, coffee and chocolate were among the products most affected. Droughts in Spain, Italy and Portugal, where Britain imports much of its fruit and vegetables, have intensified seasonal price pressures.
The rise in food costs complicates the government’s negotiations with public sector unions, as ministers seek to keep pay rises below 4%, with the exception of hospital doctors. Unions are likely to push for higher wage settlements as workers face rising living costs.
Analysts noted that while a rate cut in 2025 is still possible, chances of further easing this year are slim. The National Institute of Economic and Social Research (NIESR) forecast inflation will fall in the second half of the year and return to the Bank’s 2% target by late 2026.
The NIESR’s Monica George Michail said: “Given that several of the current drivers of annual price increases are one-off policy changes, we think the Bank of England may look through them and cut interest rates one more time this year. However, there remain upside risks especially from food prices and sustained wage pressures, which will force the Bank to remain cautious.”
Earlier this month, the Bank of England reduced its base rate to 4%, though some policymakers argued it was too soon to cut.
Chancellor Rachel Reeves said: “We have taken the decisions needed to stabilise the public finances, and we’re a long way from the double-digit inflation we saw under the previous government, but there’s more to do to ease the cost of living. That’s why we’ve raised the minimum wage, extended the £3 bus fare cap, expanded free school meals to over half a million more children, and are rolling out free breakfast clubs for every child in the country. Through our plan for change we’re going further and faster to put more money in people’s pockets.”
Companies have pointed to employment tax increases and global trade tensions, including Donald Trump’s tariff war, as additional drivers of rising prices. Shadow chancellor Mel Stride said higher national insurance contributions had forced businesses to raise prices, worsening global inflationary pressures.
The consultancy Cornwall Insight also warned that the energy price cap for household gas and electricity will rise by 1% in October, adding around £17 to annual bills.
Union leaders have urged the government to act. Sharon Graham, general secretary of Unite, said: “Once again, the soaring cost of basic essentials like food and water is pushing families to the brink. Workers and their families are struggling to pay excessive bills. Pressure needs to be taken off family budgets by giving workers a pay rise. The time for action is now.”
