UK Inflation Hits 3.8% Peak

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UK inflation increased to 3.8% in the 12 months to July 2025, up from 3.6% in June, marking the highest level since January 2024, according to the Office for National Statistics (ONS).

The rise was largely driven by a 30.2% surge in airfares, attributed to heightened demand during the school holiday period. Food price inflation also increased to 4.9%, up from 4.5% in June, with significant rises in the costs of beef, instant coffee, and orange juice. These increases have placed added pressure on households, particularly those with lower incomes who spend a larger proportion of their budgets on essentials.

Core inflation, which excludes volatile items such as food and energy, stood at 3.8%, up from 3.7% in June. Services inflation rose to 5.0%, largely driven by higher costs in the transport and accommodation sectors. Analysts note that these figures highlight persistent domestic price pressures despite previous interest rate adjustments.

The Bank of England reduced interest rates to 4% in August 2025, following a narrow 5–4 vote by the Monetary Policy Committee. This move aims to stimulate spending while managing price pressures. Analysts suggest that the recent inflation spike could delay future rate cuts, with some forecasts indicating a potential hold on interest rates until spring 2026.

Businesses across the UK are also feeling the impact. Retailers report higher operating costs, while farmers have expressed concern over poor harvests potentially driving up prices for eggs, meat, and other staples. In Manchester, small business owners have implemented cost-saving measures to maintain viability, reflecting the wider economic effects of rising inflation.

The trajectory of inflation will continue to influence government fiscal policy and the Bank of England’s monetary decisions, shaping household finances and broader economic stability. Economists predict that inflation could ease in 2026 if energy prices remain stable and supply chain issues improve. However, the recent spike serves as a reminder of the ongoing challenges facing households, businesses, and policymakers across the UK.