Inflation rose again last month to a higher than expected 3.8% amid higher food and fuel prices, adding to fears that the Bank of England will delay further interest rate cuts.
Figures showed the annual rate as measured by the consumer price index (CPI) climbed from June’s 3.6% reading, sitting above the central bank’s 2% target for the 10th consecutive month.
That overshot financial market forecasts of a 3.7% figure for July and all but rules out another reduction in the cost of borrowing this year, with financial markets not fully pricing in the chance of a fresh quarter-point cut until April 2026.
The data also suggests rail fares are on track to rise by 5.8% next year. Increases in regulated train ticket prices are usually calculated by adding one percentage point to July’s inflation reading as measured by the retail prices index, which was 4.8%.
The Office for National Statistics said a jump in airfares was behind much of the increase in average prices. Petrol prices nudged prices higher after a comparison with last year, when prices at the pumps were falling.
Food and non-alcoholic beverages were up 4.9% year on year in July, an increase from 4.5% in the 12 months to June.
Droughts in Spain, Italy and Portugal, where the UK sources much of its fresh fruit and vegetables have pushed up prices this summer at a time when prices would usually fall.
The Bank of England trimmed interest rates to 4% earlier this month in line with projections of falling inflation over the next two years. However, several MPC members voted to hold interest rates until the trend became clearer and July’s jump in CPI is likely to push the timing of future cuts deeper into 2026.
Companies have blamed employment tax rises and the uncertainty caused Donald Trump’s tariff war for an increase in domestic prices, while droughts in Spain have pushed up the cost of food.
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Cornwall Insight, the energy consultancy, said on Tuesday that it expected the energy price cap covering domestic electricity and gas would go up by £17 or 1% in October, adding to domestic fuel costs.