UK inflation rises to 18-month high in July, driven by higher air fares

Yahoo

6 hours ago

Inflation jumped to its highest level in 18 months, amid higher food prices and transport costs.
Figures from the Office for National Statistics (ONS) showed the annual rate as measured by the consumer price index (CPI) climbed to an unexpected 3.8% in July, up from 3.6% in June. It is forecast to reach 4% by the end of the year.
Transport costs, mainly as a result of higher air fares, were the largest upward driver of prices. Petrol prices nudged higher compared with last year, when prices at the pumps were falling.
Food and non-alcoholic drinks were up 4.9% year on year in July, an increase from 4.5% in the 12 months to June.
ONS chief economist Grant Fitzner said air fares experienced the largest July increase since the agency began collecting that data on a monthly basis in 2001.
'This increase was likely due to the timing of this year's school holidays,' he said.
It's the highest rate of price increases since January 2024, when annual inflation was 4%.
"The price of petrol and diesel also increased this month, compared with a drop this time last year," he added.
"Food price inflation continues to climb, with items such as coffee, fresh orange juice, meat and chocolate seeing the biggest rises."
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It's the fourth consecutive increase in food inflation and the highest rate since February 2024. The ONS data showed that there were price rises for meat; sugar, jam, honey, syrups, chocolate and confectionery; coffee, tea and cocoa; and mineral waters, soft drinks and juices. Wholesale UK butter prices doubled compared to 2020.
Jim Bligh, director of corporate affairs and packaging at the Food and Drink Federation (FDF), warned that' high food and drink inflation will persist through the year'.
He said: "With high commodity prices, the new £1.4bn packaging tax, and increased national insurance costs, it's no surprise that many food and drink manufacturers have seen their costs increase by 10% or more this year.
"Manufacturers have absorbed as many of these costs as possible, but consumers will still see higher prices at the till."
Core inflation - which measures price rises without volatile food and energy costs - rose to 3.8%. Services inflation, a key measure of price pressures for the Bank of England, climbed to 5% in July from 4.7% in June.
Air fares surged by 30.2% between June and July, the biggest jump since the collection of monthly data began in 2001.
Prices across UK restaurants and hotels also increased last month, largely driven by a jump in overnight hotel stays booked the night before.
In a statement from the Treasury on Wednesday morning, Chancellor Rachel Reeves said: 'We have taken the decisions needed to stabilise the public finances, and we're a long way from the double-digit inflation we saw under the previous government, but there's more to do to ease the cost of living.
"That's why we've raised the minimum wage, extended the £3 bus fare cap, expanded free school meals to over half a million more children, and are rolling out free breakfast clubs for every child in the country. Through our Plan for Change we're going further and faster to put more money in people's pockets.'
The data suggests rail fares are likely to rise by 5.8% next year. Increases in regulated train ticket prices are usually calculated by adding one percentage point to July's inflation reading as measured by the retail prices index, which was 4.8%.
Pieter Reynders, a partner at McKinsey & Company, said: 'The CPI rise to 3.8% will sting households already under pressure. With the school summer holidays falling in July, and many families booking shorter holidays closer to home, transport [3.2%, showing the largest uptick vs June] and restaurant and hotel prices [3.4%], spiked. Some seasonal shifts are expected, but the pace of increases still far outstrips the Bank of England's 2% target.
'Food inflation further accelerated to 4.9%, above both CPI and wage growth at 4.6%. That means household budgets will continue to be squeezed, leaving only modest real income gains."
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The figures complicate the picture for the Bank of England as policymakers decide whether they can cut interest rates again to boost the economy. Rate setters lowered borrowing costs from 4.25% to 4% earlier this month.
'The risk is that inflation expectations and wage growth rise further and the next move down in rates does not happen until next year,' said Ruth Gregory at Capital Economics. The BoE's target for inflation is 2%.
Alice Haine, a personal finance analyst at Bestinvest by Evelyn Partners, said: "Mortgaged homeowners and first-time buyers may feel disheartened by the latest inflation reading. Rising inflation can dent affordability and reduce their borrowing power, making it harder to secure a mortgage or move up the property ladder.
'Rising inflation also puts a spanner in the works for those hoping for mortgage rates to ease more dramatically. Persistent price pressures may cause the central bank to delay further easing. While affordability has improved for buyers in recent months, thanks to lower mortgage rates and lenders relaxing their stress test rules, rates may not be easing as fast as people hoped."