Inflation rose to 3.8% in July

Latest annual inflation data from the Office of National Statistics (ONS) has revealed the Consumer Price Index (CPI) has risen by 3.8% in July.

The increase, up from 3.6% in June, has exceeded economists expectations and is well above the Bank of England’s 2% target for inflation. The Bank of England anticipates inflation to peak at around 4% in September, before falling once again, however, price rises are already at their fastest since January 2024.

The ONS identified air fares, and food and drink prices (both in supermarkets and hospitality settings) as among the main contributors to the rise in inflation. Steep price rises on these categories compared to July 2024 have been attributed to the dry summer, impacting UK agriculture, and timings of school holidays compared to ONS data collection times.

Despite forecast inflation, the Bank of England opted to lower interest rates by 0.25 percentage points earlier this month in order to stimulate economic growth. The Bank of England is expected to continued on its path reducing interest rates in the longer term; however, city analysts have largely ruled out another rate cut at the Monetary Policy Committee’s next meeting.

While inflation in the UK has been trending upwards since mid 2024, this pattern is not being seen in other major European economies. Initial data from France and Germany has revealed much lower rates of inflation on the continent, at 0.9% (up from 0.6% in June), and 1.3% (down from 2.0% the previous month) respectively.