Higher food and airfare prices pushed UK inflation above expectations in July, official figures showed Wednesday, which has tempered market expectations that the Bank of England will cut interest rates again this year.
The Office for National Statistics said consumer price inflation was 3.8 per cent in the year to July, up from 3.6 per cent in June. One of the contributors was airfares soaring by 30.2 per cent between June and July, the biggest jump since the collection of monthly data began in 2001.
Most economists had anticipated a more modest rise in inflation to 3.7 per cent.
With inflation now at its highest rate since January 2024 and nearly double the Bank of England's target of 2 per cent, the prospects of another rate cut in 2025 are diminishing.
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“July's outturn probably extinguishes hope of a September interest rate cut, while strengthening underlying inflationary pressures calls into question whether policymakers will be able to relax policy again this year," said Suren Thiru, economics director at the chartered accountants institute ICAEW.
The bank cut its main interest rate by a quarter of a percentage point to 4 per cent earlier this month, its fifth reduction in a year, when policymakers began lowering borrowing costs from a 16-year high of 5.25 per cent.
The Bank of England's key rate, a benchmark for mortgages as well as consumer and business loans, is now at the lowest level since March 2023.
The latest increase is another blow to the Labour government, which was partly propelled into power last July because of the cost-of-living crisis, which saw inflation rise to over 11 per cent at one time.
Treasury chief Rachel Reeves acknowledged there was “more to do to ease" the cost of living.
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