Britain’s inflation surged to 3.8% in July, its highest level since January 2024, underscoring the country’s struggle with stubborn price pressures as peers in the U.S. and euro zone record much lower rates.
The rise from 3.6% in June was fuelled mainly by higher transport costs, especially air fares, while services inflation – a key gauge for the Bank of England (BoE) – accelerated to 5% from 4.7%.
The figures came in line with the BoE’s own forecast but were slightly stronger than most economists expected. Sterling ticked up following the release.
Rate cut dilemma
The data leaves the BoE in a bind. Earlier this month, the bank cut rates for the first time in the cycle, but only by a slim 5-4 majority. Policymakers warned that persistent inflation could force a slower path of easing.
“Today’s numbers will reinforce the MPC’s cautious stance,” said Martin Sartorius, principal economist at the Confederation of British Industry. “The risk of second-round effects means further cuts will not come quickly.”
UK lags global peers
At 2.7% in the United States and close to the European Central Bank’s 2% target in the euro zone, inflation elsewhere is far more subdued. The BoE expects UK inflation to peak at 4% in September and remain above its 2% target until at least mid-2027.
Several domestic pressures are driving the divergence: a sharp jump in regulated utility bills in April, wage growth still hovering near 5%, and rising business costs linked to payroll taxes and the higher minimum wage.
Households under strain
Food and non-alcoholic drink prices were 4.9% higher than a year ago, the steepest increase since February 2024, adding to household cost-of-living worries.
Yet, the broader economy remains resilient. GDP expanded more strongly than expected in the second quarter, while the labour market, though softening, shows signs of stabilisation.
Fresh data from Brightmine also showed private-sector pay deals steady at 3% in the three months to July, marking the eighth consecutive month without change.
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