UK inflation rose higher than anticipated in July 2025, mainly driven by elevated summer travel costs and persistently increasing food prices. The Consumer Prices Index (CPI) climbed to 3.8% in the 12 months to July, up from 3.6% in June, according to the Office for National Statistics (ONS). This reading exceeded economists’ predictions, who expected inflation to hit 3.7%.
The rise marks the highest inflation rate since January 2024, when CPI reached 4%. The ONS highlighted that the school summer holidays were a major factor, leading to a notable increase in airfares – the largest July rise in airfare costs since 2001, when the methodology for tracking airfares changed to a monthly measure.
Grant Fitzner, chief economist at the ONS, explained that “the primary factor was a significant rise in airfares, marking the largest increase for July since the methodology for collecting airfare data shifted from quarterly to monthly in 2001. This surge was likely influenced by the timing of this year’s school holidays”.
Petrol and diesel prices also contributed, with an uptick observed this July, contrasting with a decline for the same period last year. The effect of food price inflation remains persistent, with noticeable increases in staples such as fresh juice and chocolate.
July’s inflation print marks the fourth consecutive month in which CPI has surpassed market forecasts, presenting a challenge for policymakers. The data follows the Bank of England’s recent and somewhat controversial decision to cut interest rates, a move made in the context of ongoing economic uncertainty.
Industry comments
Kate Nicholls, Chair of UKHospitality, said: “It’s clear the UK economy is stuck in a low growth and high inflation trap, and the only certainty is that increasing taxes and costs would make the situation worse.
“Our latest member survey data shows that the £3.4 billion in additional annual cost that hit the sector in April has forced eight in 10 hospitality businesses to put up prices – which is no doubt a factor unfortunately fuelling inflation.
“Pulling the tax lever on hospitality once again would be the worst possible thing to do and instead the Government should lower business rates, fix NICs and cut VAT at the Budget to back hospitality and stop the sector from being taxed out.”
Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm, said: UK inflation has risen to 3.8% in July, up from 3.6% in June, and now sits at almost double the Bank of England’s 2% target. The increase, driven largely by persistent domestic cost pressures, signals that inflation is here to stay for a while longer. Given these underlying pressures, the Monetary Policy Committee will not, and should not, cut interest rates when it next meets in September. Inflation will need to show some sign of improving if we are to see any cut at all before the new year.
Core inflation – which strips out volatile food and energy prices – remains stubbornly high, largely fuelled by strong wage growth in hospitality, healthcare, and transport. Wage growth is finally starting to slow, but this will take several months before the effects are reflected in the inflation figures. Sticky inflation will have huge repercussions for lower-income households especially, as services inflation keeps the cost-of-living squeeze in place, and rising rents and mortgage payments intensify the strain.
Higher inflation is a worry for the Chancellor in the lead-up to the Autumn budget. For the financial markets, inflation reflects volatility, pushing up gilt yields and therefore the cost of servicing the UK’s already sizeable public debt. With the fiscal headroom already tight, this threatens to exacerbate the situation the Chancellor finds herself in.
While growth was better in the second quarter of the year than expected, further cuts to interest rates could have helped the economy finally kick into a higher gear, but it is clear now that this is not yet forthcoming. Without rising inflation, the Chancellor’s dual task of maintaining fiscal stability and generating growth was already difficult – it is now looking more like impossible.
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said: “Inflation was always likely to rise today, but this report is definitely on the hotter side. In particular, services inflation, which the Bank of England watches very closely as a measure of underlying inflation pressure, popping higher will be a source of concern among policymakers.
“With inflation likely to rise further in coming months and wage growth gradually slowing, it is quite possible we move back to a period of sustained negative wage growth. All of which will keep the economy feeling more “stagflationary” than comfortable. The outlook for interest rates is therefore looking more uncertain. We continue to expect another cut in November, but the risk of a more sustained pause in the cutting cycle has increased.”
Paresh Raja, CEO of Market Financial Solutions, said: “Today’s data highlights the tricky position facing both the Bank of England and the government. Bolstered by a reasonably strong July, the economy limped through Q2 with growth of just 0.4%. Meanwhile, inflation is running at almost double the Bank’s 2% target, leaving policymakers with a stark choice – cut the base rate further and risk entrenching inflation, or stick to a cautious approach and further strangle economic growth.
“What is clear, however, is that the property market is holding firm in spite of these notable issues. House prices continue to rise, while mortgage rates have edged down towards their lowest levels in years. Taken together, this should lift buyer confidence and fuel greater market activity in the coming months.
“Interest is now slowly turning to the Autumn Budget. The potential for tax hikes – and radical speculation about potentially replacing Stamp Duty with a new property tax – could start to weigh heavily on the market. So, it’s crucial that lenders and brokers continue to support borrowers as they navigate a perennially uncertain economic environment.”
These latest figures narrow the Bank’s scope for accommodative action, raising questions about the path of interest rates in the months ahead.
