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The
Office for National Statistics said consumer price inflation was
3.8% in the year to July, up from 3.6% in June. One of the
contributors was airfares soaring by 30.2% 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%.
With inflation now at its highest rate since January 2024 and
nearly double the Bank of England's target of 2%, the prospects
of another rate cut in 2025 are diminishing.
“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% earlier this month, its fifth reduction in a year,
when policy makers began lowering borrowing costs from a 16-year
high of 5.25%.
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% at
one time.
Treasury chief Rachel Reeves acknowledged there was “more to do
to ease" the cost-of-living.
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