UK inflation rose unexpectedly in July, led by energy and airfares, but core pressures remain nuanced. Markets signal BoE may pause in September.

While a post-pandemic burst of inflation has abated across much of the developed world, the UK is still stuck with the highest price growth among big Western economies.

UK inflation rose to 3.8 per cent in July, up from 3.6 per cent in June, keeping the rate stuck at its highest level since January. The rise in Consumer Prices Index (CPI) was also higher than economists had anticipated, who had forecasted 3.7 per cent.

Transport was the biggest factor driving up overall inflation in July, particularly due to a spike in flight prices as families booked summer holidays. | ITV National News

The U.K.’s annual inflation rate was higher than expected at 3.8% in July, according to data released by the Office for National Statistics (ONS) on Wednesday. Most economists had anticipated inflation would reach 3.

Higher food and airfare prices pushed U.K. inflation above expectations in July. The development has tempered market expectations that the Bank of England will cut interest rates again this year.

By contrast, Eurozone inflation held steady in the same month at 2 per cent, according to separate data from Eurostat, the EU’s statistics agency, with a reading of just 0.9 per cent in France. The 1.8 percentage point gap between UK and euro area inflation is the widest since September 2023.

Gilts broke out of a week-long slide on Wednesday, surging despite a hot inflation number that threatens to slow the pace of interest rate cuts by the Bank of England.