UK inflation climbs to 3.8% in July, raising fears over delayed rate cuts

20 August 2025 , 07:25

764     0

UK inflation climbs to 3.8% in July, raising fears over delayed rate cuts

Inflation rose again last month, reaching a higher than expected 3.8% due to increased food and fuel prices, which heightens concerns that the Bank of England will delay further interest rate cuts.

Figures showed the annual rate, as measured by the consumer price index (CPI), climbed from June’s 3.6% reading, remaining above the central bank’s 2% target for the 10th consecutive month. 

This exceeded financial market forecasts of a 3.7% figure for July, effectively ruling out a further reduction in borrowing costs this year.

The Bank of England reduced interest rates to 4% earlier this month, aligning with projections of decreasing inflation over the next two years. However, several MPC members voted to maintain interest rates until the trend became clearer, and July’s increase in CPI is likely to delay future cuts until deeper into 2026. 

Companies have attributed rises in domestic prices to employment tax increases and the uncertainty caused by Donald Trump’s tariff war, while droughts in Spain have driven up food costs.

Cornwall Insight, the energy consultancy, said it expects the energy price cap, covering domestic electricity and gas, to increase by £17 or 1% in October, adding to domestic fuel expenses.

Sophia Martinez

World Affairs Correspondent