Britain’s inflation rate rose to its highest level in a year and a half in July, underscoring persistent price pressures that continue to set the country apart from other major economies. Official data released on Wednesday showed consumer price inflation increasing to 3.8% from 3.6% in June, the sharpest rise since January 2024.
The acceleration was most notable in the services sector, a measure closely monitored by the Bank of England (BoE). Services inflation climbed to 5% from 4.7% the previous month, exceeding economists’ expectations and adding to concerns that underlying price pressures remain stubborn.
The central bank had anticipated July’s headline inflation rate of 3.8% and a 4.9% rise in services prices, but markets had forecast slightly lower figures of 3.7% and 4.8%. Sterling edged higher following the release of the data.
The figures arrive just weeks after the BoE cut interest rates for the first time in four years. That decision, reached by a narrow 5-4 vote, reflected cautious optimism that inflationary pressures were easing. However, the July data suggest that policymakers may need to slow the pace of further rate reductions.
“Today’s inflation data will reinforce the Monetary Policy Committee’s cautious approach to cutting interest rates going forward,” said Martin Sartorius, principal economist at the Confederation of British Industry. “While inflation is projected to ease next year, the risk of second-round effects means the MPC will not race to loosen policy in the near term.”
Britain’s inflation remains higher than in both the United States and the eurozone. In July, U.S. consumer prices held steady at 2.7%, while eurozone inflation hovered closer to the European Central Bank’s 2% target. By contrast, the BoE forecasts that UK inflation will climb to 4% in September—double its target—and remain above 2% until mid-2027.
Analysts say the divergence partly reflects Britain’s regulatory framework for energy and utilities, with April’s sharp increases in household bills feeding into year-on-year comparisons. The country’s tight labour market, which economists argue has become more rigid since Brexit, is also fueling price growth. Wage growth has slowed but remains around 5%, a level the BoE considers inconsistent with a swift return to its 2% inflation target.
Employers have pointed to April’s tax increases and a sharp rise in the minimum wage as additional factors forcing businesses to raise prices. Transport costs, particularly air fares, were the largest contributors to July’s rise in inflation, while food and non-alcoholic beverages rose 4.9% from a year earlier, the fastest pace since February.
Despite signs of strain in the labour market, recent economic data suggest the economy retains momentum. The Office for National Statistics reported stronger-than-expected growth in the second quarter, while separate figures showed basic pay settlements in the private sector held steady at 3% for the eighth consecutive month.
The persistence of inflation is likely to weigh heavily on the BoE as it balances the risks of easing too quickly against the pressure facing households from high borrowing costs.
