Latest Office for National Statistics (ONS) data has shown that inflation has increased to 3.8 per cent in the year to July – its highest level in 18 months.
Inflation rose at its fastest pace since January 2024, driven by rising food, fuel and transport costs and is up from 3.6 per cent in June.
ONS Chief Economist Grant Fitzner said “Inflation rose again this month to its highest annual rate since the beginning of last year.
“The main driver was a hefty increase in air fares, the largest July rise since 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.”
Mike Randall, CEO at Simply Asset Finance, said “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.”
John Phillips, CEO of Just Mortgages and Spicerhaart, said “Another rise in monthly inflation takes us one step closer to 4% – double the bank’s illusive target and where their long-term forecasts suggest inflation will peak. While you can say that inflation is currently playing out according to the bank’s plan, it still remains ultra sticky, highly unpredictable and totally susceptible to both internal and external economic shocks. It likely explains why the recent interest rate cut was such a knife-edge decision, and yet so necessary to give some form of support to a struggling economy.
“While that 5-4 verdict likely irked many investors and economists, we remain hopeful for at least one more base rate cut this year – although this is totally reliant on how inflation plays out and how much fight the UK economy has left in it. Positive movement all helps towards improving conditions in the mortgage market and enables it to be that key driver in economic growth. While inflation continues to add pressure to households – particularly when doing their weekly shop – we continue to post positive numbers when it comes to buyer registrations, valuation requests or mortgage appointments. Lender innovation and affordability tweaks have certainly helped catch the interest of potential buyers and sellers. So has the proactive approach of brokers to engage with clients early, explore all options and support borrowers in the way that only they can.”
Susannah Streeter, Head of Money and Finance at Hargreaves Lansdown said “The pressure cooker of prices is on the boil again, with rising air fares, hotel bills and groceries keeping costs steamy. Inflation has kept track with what the Bank of England predicted, rising to 3.8% – veering even further away from the 2% target. As people ringfenced budgets to enjoy themselves on holiday, they were willing to shell out for expensive seats on planes, with the cost of airfares rising by 30.2% between June and July. There appeared to be a small lift in spending around the Oasis tour, with hotel and restaurant spending rising 3.4%. However, Taylor Swift still had the edge when it came to the inflation effect, given that the prices jumped more markedly when she toured the UK last June, with a monthly rise of 6.3% clocked up for the sector.
“Although the pattern of spending in July may end up being more temporary, the rise in the headline rate is set to keep Bank of England policymakers cautious. Some will worry that the persistent increase in everyday prices will propel more higher wage demands and make inflation harder to cool. The Bank has already forecast that it expects prices to peak at 4% next month. But there will also be niggles of worry about the reliability of the data they can work with going forward, given that the next retail sales snapshot is being delayed due to problems at the ONS.
“Borrowers look set to need lots more patience, given another interest rate cut is not likely in the next few months, it’s touch and go for December, with a reduction not fully priced in by financial markets until the spring. This is likely to keep gilt yields higher, and cause continued headaches for the government, given it pushes up borrowing costs, and keeps the public finances in a fragile state.”
Suren Thiru, Economics Director at ICAEW said “These figures underscore the intensifying financial squeeze on households and businesses as a summer holiday spike in food and flight costs helped push inflation uncomfortably higher, despite July’s drop in energy bills.
“Increasing services inflation suggests that rising National Insurance and National Living Wage costs are exacerbating underlying price pressures by more than offsetting the current downward squeeze from looser labour market conditions.
“While spiralling business costs and food prices may mean that inflation peaks higher than the Bank of England’s prediction of 4%, it should start decelerating in the autumn as a weaker economy increasingly bears down on prices.
“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.”