Air fares and food prices push up UK inflation in July

Prices in the UK rose by 3.8% in the year to July, driven mainly by a jump in the price of air fares coinciding with the school summer holidays.

That means inflation is at its highest level since January 2024 and still far above the Bank of England’s target of 2%.

A rise in the cost of eating out, as well as food and non-alcoholic beverages more generally, also helped to push up prices, according to the Office for National Statistics (ONS).

The Bank’s latest forecast expects inflation to peak at 4% in September.

July’s inflation rise was slightly higher than most economists had predicted and compares with a rise of 3.6% in the year to June.

ONS Chief Economist Grant Fitzner said the “hefty” increase of 30.2% in air fares between June and July was the biggest jump for that period since the collection of monthly data began in 2001.

He said it was “likely due to the timing of this year’s school holidays”.

This year, the collection day for the ONS data overlapped with the start of the school holidays in a way they didn’t last year.

The cost of food and non-alcoholic beverages rose 4.9% in the year to July, up from 4.5% in the year to June. It was the fourth month in a row in which food and drink inflation had risen, bringing prices to their highest since February 2024.

Coffee, fresh orange juice, meat, and chocolate saw the biggest price rises.

Policy makers at the Bank of England take into account inflation and other economic data when deciding what to do about interest rates.

Earlier this month, they narrowly voted to cut rates to 4%, down from 4.5%, taking rates to their lowest for more than two years.

Inflation now predicted to hit 4% in September, which would not normally prompt further interest rate cuts.

However, at the same time, the economy has been struggling to grow and the jobs market is uncertain, which would usually encourage the Bank to cut rates to encourage spending.

Bank of England governor Andrew Bailey told the BBC that this month’s decision to cut rates at been “finely balanced” and that the future course of interest rates was “a bit more uncertain frankly”.

“Interest rates are still on a downward path,” he said. “But any future rate cuts will need to be made gradually and carefully.”

Reacting to the latest figures, Chancellor Rachel Reeves said the government had “taken the decisions needed to stabilise the public finances, and we’re a long way from the double-digit inflation we saw under the previous government”.

But, she added, “there’s more to do to ease the cost of living”.

Shadow chancellor Mel Stride said the news on inflation was “deeply worrying for families”.

“Labour’s choices to tax jobs and ramp up borrowing are pushing up costs and stoking inflation – making everyday essentials more expensive.”