Bank could delay interest rate cuts as food and travel costs fuel inflation

UK inflation rose again last month to a higher-than-expected 3.8% amid higher food prices and travel costs, adding to fears that the Bank of England will delay further interest rate cuts.

- Phillip Inman

Figures showed the annual rate as measured by the consumer prices index climbed from June's 3.6% reading, sitting above the central bank's 2% target for the 10th consecutive month. That overshot financial market forecasts of a 3.7% figure for July and makes another reduction in the cost of borrowing this year unlikely, with financial markets not fully pricing in the chance of a fresh quarter-point cut until next spring.

The data also suggests rail fares are likely to rise by 5.8% next year. Increases in regulated train ticket prices are usually calculated by adding 1 percentage point to July's inflation reading as measured by the retail prices index, which was 4.8%.

The Office for National Statistics said a jump in air fares was behind much of the increase in average prices. Tickets on flights out of the UK rose 30% month on month, although much of the increase was because of the earlier timing of the summer holiday break.