UK inflation rises to 3.8% in July

UK inflation edged higher than expected in July, rising to 3.8% as the cost of travel surged during the school summer holidays, the Office for National Statistics (ONS) revealed today.

The latest figures show the Consumer Prices Index (CPI) climbed from 3.6% in June, outpacing economists’ forecasts of a 3.7% increase. The rise keeps inflation close to its highest level since January 2024, when it hit 4%.

The ONS said that transport costs, particularly air fares, were the main driver behind the rise. Grant Fitzner, the ONS’s chief economist, explained:

“The main driver was a hefty increase in air fares, the largest July rise since the collection of air fares changed from quarterly to monthly in 2001. This increase was likely due to the timing of this year’s school holidays.

“The price of petrol and diesel also increased this month, compared with a drop this time last year. Food price inflation continues to climb — with items such as coffee, fresh orange juice, meat and chocolate seeing the biggest rises.”

CPIH, the ONS’s preferred inflation measure, which includes owner occupiers’ housing costs, also rose 4.2% in the year to July, up slightly from 4.1% in June.

Meanwhile, the Retail Prices Index (RPI) – still used in some pay and pension calculations – surged from 4.4% to 4.8%, highlighting persistent price pressures.

With inflation slightly higher than expected, economists believe the Bank of England may hesitate before cutting interest rates further this year. Financial markets are now pricing in a greater likelihood that policymakers will hold rates at current levels in September.

Businesses have also expressed concern over rising costs. Mike Randall, CEO of Simply Asset Finance, warned that the latest figures add pressure to firms already grappling with higher taxes and wage costs:

“Today’s rise in inflation will be unwelcome for many, signalling higher prices across supply chains and further tightening margins. This comes at a time when businesses are still grappling with April’s NI hike, and speculation looms around further cost increases in the Autumn Budget.

“While this could dishearten some SMEs, most remain optimistic and are waiting for the right moment to invest in growth. The Government now needs to recognise the untapped potential at its fingertips and focus on the missing piece: creating an environment that fosters entrepreneurialism, rewards risk-taking, and channels funding to the firms driving recovery.”