U.K. Inflation Surges in July, Deferring Monetary Easing Plans

Today’s Office for National Statistics data shows UK inflation rose 3.8% year-on-year in July, up from 3.6% in June and above the 3.7% forecast.

The monthly CPI rose 0.1%, reversing June’s 0.3% gain and beating the –0.1% forecast. Core inflation, which excludes food and energy, rose likewise to 3.8%, above expectations.

Rising living costs drove the uptick. Food and non-alcoholic beverages inflation reached 4.9%, its highest since February 2024.

Transport costs jumped, with airfares spiking 30% month-on-month—the biggest July increase since data began monthly tracking in 2001. Motor fuel costs also climbed.

Meanwhile, housing costs eased. CPIH—including owner-occupiers’ housing costs—rose 4.2%. Owner-occupiers’ housing costs slowed to a 5.5% annual rise, down from 6.4%, reflecting the first monthly decline since 2010.

Rents rose 4.5%, the lowest annual gain since October 2022. Services inflation intensified, climbing to 5%, above the Bank of England’s expectations.

That strong core pressure undermines confidence in further rate cuts. Although the Bank already cut its key rate to 4%, the unexpected inflation resurgence likely delays additional easing. Markets now price a quarter-point cut by March 2026.

At 3.8%, UK inflation now leads among major economies. These figures underscore ongoing cost-of-living pressures and complicate the path to economic relief through monetary policy.