UK Inflation Rises to 3.8% in July, Driven by Energy and Food Costs

UK consumer price inflation (CPI) rose to 3.8% in July, up from 3.6% in June, according to official figures released on Wednesday. The result was slightly higher than the consensus forecast of 3.7%.

Energy Prices Push Inflation Higher

The increase was mainly driven by energy costs. Fuel price inflation improved from -9.0% in June to -6.7% in July, adding 0.1 percentage points to the overall CPI figure.

Services Inflation Above BoE Forecast

Services inflation rose to 5.0% in July from 4.7% in June, surpassing the Bank of England’s forecast of 4.9%. The jump was partly due to base effects in communications and hospitality, as well as a sharp 30.2% monthly surge in airfares linked to school holidays.

Food Inflation Adds Pressure

Food prices also climbed. Food inflation increased to 4.9%, higher than both the Bank of England and Capital Economics’ forecasts of 4.7%. Rising food costs remain important as they strongly influence household inflation expectations.

Inflation Outlook for Coming Months

The Bank of England had already anticipated July’s rise in its August Monetary Policy Report. CPI is expected to peak at 4.0% in September, driven by higher services inflation and further pressure from past increases in agricultural commodity prices.

Rate Cut Still Possible Despite Risks

Despite stronger inflation, Capital Economics still sees a November rate cut as possible, pointing to a softening labor market that could ease services inflation.

However, analysts also warn that rising wage growth and inflation expectations could delay the next rate cut until 2026.