UK inflation at 18-month high as food, transport costs soar

Consumer prices rise 3.8% in July from a year earlier; services inflation climbs to 5%

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British inflation climbed to an 18-month high on the back of surging food, transport and hospitality prices, putting the Bank of England (BOE) under pressure to reconsider the pace of interest-rate cuts.

Consumer prices rose 3.8 per cent in July from a year earlier, up from 3.6 per cent in June and with the fastest pace since January 2024, the British Office for National Statistics (ONS) said on Aug 20. The pickup was forecast by the BOE but exceeded the 3.7 per cent economists were predicting.

Services inflation, a closely watched gauge of underlying price pressures, climbed to 5 per cent, above the BOE's 4.9 per cent forecast. The pound erased a drop after the report to trade little changed at US$1.3502.

The July reading does little to settle the debate within the BOE over the path of policy after the tightest of decisions in August when rates were cut a quarter point to 4 per cent and Governor Andrew Bailey warned of "genuine uncertainty" about the next move.

The British central bank expects inflation to peak at 4 per cent in September, double its 2 per cent target, on the back of higher food costs but to drop back after that. July's increase was also driven by what may prove to be temporary factors, including the biggest jump in airfares in 24 years due to the timing of the summer holidays, and moves in global food commodity markets.