Consumer price inflation rose to 3.8% in July, up from 3.6% in June, driven largely by rising food and transport costs.
According to figures from the Office for National Statistics (ONS), the increase marks the highest inflation rate in 18 months, with forecasts suggesting it could reach 4% before the year ends.
The biggest contributor came from transport, particularly higher air fares, while petrol prices also edged up compared with the same period last year, when pump prices were falling.
Food and non-alcoholic drinks saw a sharper annual rise too, climbing 4.9% in July compared with 4.5% in June.
ONS chief economist Grant Fitzner explained that air fares recorded their steepest July increase since monthly records began in 2001, which he linked to the timing of this year’s school holidays.
Annual inflation in the UK has reached its highest point since January 2024, when the rate stood at 4%. The latest figures show that prices are rising once again, with households continuing to feel the impact of higher living costs across essentials and services.
One of the key drivers of the increase has been fuel. Petrol and diesel prices rose this month, marking a sharp contrast to the fall recorded during the same period last year. The reversal has added to the financial burden for motorists and transport-related businesses.
Food inflation has also been on an upward trend, with July marking the fourth month in a row of increases. Items such as coffee, fresh orange juice, meat and chocolate have all seen significant price jumps, pushing household grocery bills higher than before.
According to the Office for National Statistics (ONS), the latest rise represents the fastest pace of food inflation since February 2024. Categories that showed notable increases included meat; sugar, jam, honey, syrups, chocolate and other confectionery; coffee, tea and cocoa; as well as mineral waters, soft drinks and juices. Wholesale butter prices in the UK have doubled compared to 2020, underlining the scale of the challenge.
Jim Bligh, director of corporate affairs and packaging at the Food and Drink Federation (FDF), warned that high inflation in the food and drink sector is unlikely to ease soon. He pointed out that several pressures are combining to push costs higher for producers and suppliers.
He explained that factors such as elevated global commodity prices, the introduction of a £1.4 billion packaging tax, and increased national insurance contributions have all added to manufacturers’ financial pressures. Many companies have seen their costs surge by 10% or more this year alone.
Although producers have attempted to absorb as much of the increase as possible, not all costs can be managed internally. As a result, consumers are now seeing noticeable price rises at supermarket tills, with less scope for relief in the months ahead.
Beyond food and fuel, core inflation – which strips out the most volatile items such as food and energy – also rose to 3.8%. Services inflation, an important measure closely monitored by the Bank of England, climbed to 5% in July, up from 4.7% in June.
One of the standout contributors to this trend has been air travel. Air fares jumped by 30.2% between June and July, marking the steepest monthly rise since records began in 2001. This surge was particularly linked to the summer holiday season.
The hospitality sector has also been affected. Prices in restaurants and hotels increased notably in July, with a large part of the rise driven by last-minute hotel bookings, particularly overnight stays reserved just a day in advance.
Responding to the figures, Chancellor Rachel Reeves acknowledged progress in stabilising the economy but admitted that cost-of-living pressures remain. She highlighted measures such as raising the minimum wage, extending the £3 bus fare cap, expanding free school meal eligibility, and rolling out free breakfast clubs to support families.
Despite these interventions, inflation is still expected to influence other areas. Rail fares, for example, are projected to increase by around 5.8% next year, since regulated ticket price adjustments are typically based on July’s retail prices index reading, which came in at 4.8%.
Economic experts have cautioned that households will continue to feel the strain. Pieter Reynders, a partner at McKinsey & Company, noted that the consumer price index (CPI) rise to 3.8% is another setback for already stretched families. He added that transport and hospitality costs rose sharply during the school summer holidays, compounding financial pressures.
Food inflation, now at 4.9%, is running ahead of both CPI and wage growth, which was recorded at 4.6%. This means that despite modest gains in income, household budgets are still being squeezed, leaving little room for additional spending.
The situation presents a challenge for the Bank of England as it considers the future path of interest rates. Having recently reduced borrowing costs from 4.25% to 4%, policymakers are now weighing whether further cuts are possible without fuelling higher inflation. Analysts warn that if inflation expectations and wage pressures continue to climb, the central bank may be forced to delay another rate reduction until next year.
For homeowners and prospective buyers, the outlook remains difficult. Personal finance experts warn that rising inflation may hinder affordability, making it harder to secure mortgages or move up the property ladder. While recent months have seen some improvement in mortgage rates and more relaxed lending criteria, the pace of change may not meet the hopes of many borrowers.
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