Inflation increased to 3.8% in July. With the Bank of England under pressure to keep inflation steady, we’re less likely to see a further base rate cut this year.
Inflation has reached its highest level since January 2024. Figures published by the Office for National Statistics on 20 August reveal that Consumer Prices Inflation went up to 3.8% in July, up from 3.6% in June and higher than financial analysts had anticipated.
What caused the significant increase?
Rising transport costs were the main cause, due to higher air fares. Food inflation went up from 4.5% to 4.9% – the highest level since February 2024. Items such as coffee, orange juice, meat and chocolate saw the most significant price increases.
Services inflation (which relates to transport, entertainment and professional services) went up more than anticipated from 4.7% to 5%, due to rising costs for businesses. Firms saw their costs rise in April this year after Chancellor Rachel Reeves decided to increase National Insurance contributions and the minimum wage.
The Oasis reunion tour was partly responsible for rising hotel prices as fans clamoured to find accommodation to see the band perform for the first time in 15 years.
However, an ONS spokesman said that a hefty increase in air fares was to blame for the higher-than-predicted inflation levels, along with the timing of the school holidays.
Petrol and diesel costs have also increased, despite a drop a year ago. Rail fares are also expected to increase significantly in 2026, with passengers expected to endure a 5.8% increase in ticket prices from the Spring.
What about future mortgage interest rates?
The Bank of England reduced the base rate during the last review on 7 August from 4.25% to 4%. Lenders’ mortgage rates have been dropping recently. Most analysts now believe that the Bank will hold the base rate at the current level for the rest of this year. The next review is due on 18 September.
The Bank of England’s target inflation figure is 2% and the current inflation rate is almost double that. We’ll keep you updated on future base rate and mortgage rate news.