UK inflation climbed to 3.8% in July, up from 3.6% in June, according to official data released Wednesday. The figure marks the highest level since January 2024 and highlights Britain’s ongoing struggle with rising prices compared to other major economies.
Inflation in the services sector, closely monitored by the Bank of England (BoE), also rose. It reached 5% in July, up from 4.7% in June. Both numbers were in line with BoE forecasts, though slightly higher than expectations from many economists.
Sterling saw a modest rise following the release of the figures.
Bank of England’s Dilemma
Earlier this month, the BoE cut interest rates, but the move passed narrowly with a 5-4 vote. Policymakers signaled they would slow down further rate cuts due to persistent price pressures.
Economists warn that the latest UK inflation data will likely reinforce the BoE’s cautious stance. While inflation is expected to ease in 2026, risks remain from so-called “second-round effects,” such as rising wages leading to further price increases.
Inflation Higher Than Global Peers
The United Kingdom is facing steeper inflation than the United States, where inflation stayed at 2.7% in July, and the eurozone, which remains close to the European Central Bank’s 2% target.
The BoE projects UK inflation will rise further to 4% in September, double its 2% target. Policymakers do not expect inflation to return to target until mid-2027.
Key Drivers of Price Growth
The main contributor to July’s rise was transport, particularly higher airfares. Food and non-alcoholic drink prices were also 4.9% higher than a year earlier, the sharpest increase since February 2024.
Energy and utility costs remain another factor, with April’s bill increases pushing up year-on-year comparisons. Meanwhile, Britain’s labor market and wage growth—still around 5%—continue to pressure prices, especially after higher taxes and a jump in the minimum wage.
With the economy showing signs of resilience, inflation may remain elevated, complicating the BoE’s efforts to ease monetary policy.
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