British inflation reached its highest level in 18 months in July, climbing to 3.8% from 3.6% in June, according to official data released on Wednesday. This increase once again puts Britain at the forefront of price growth issues among the world’s major developed economies.
Beyond the overall increase, which was the highest since January 2024, inflation in Britain’s services sector—a key area of focus for the Bank of England—also accelerated to 5% from 4.7% the previous month.
The Bank of England had anticipated headline inflation to rise to 3.8% in July, with services prices increasing by 4.9%. In contrast, economists surveyed by Reuters had generally predicted rates of 3.7% and 4.8%, respectively.
Following the data release, the pound sterling saw a slight increase. While the Bank of England recently cut interest rates, it was by a narrow 5-4 vote among policymakers. The Monetary Policy Committee indicated it would slow the already cautious pace of its rate cuts due to the persistent nature of inflation.
“Today’s inflation data will reinforce the Monetary Policy Committee’s careful approach to cutting interest rates going forward,” said Martin Sartorius, principal economist at the Confederation of British Industry. “While inflation is projected to ease next year, the risk of second-round effects means that the MPC will not race to loosen policy in the near term.”
Inflation in Britain is currently higher than in the United States, where it stood at 2.7% in July, and in the euro zone, where it is expected to remain near the European Central Bank’s 2% target in the coming years. Conversely, the Bank of England forecasts that British inflation will hit 4% in September, which is double its target, and stay above 2% until mid-2027.
Part of the difference with other countries’ inflation rates stems from how energy and other utility prices are regulated in Britain. Large increases in utility bills in April have contributed to the year-on-year inflation comparisons.
Britain’s relatively tight labor market, which economists say has become more inflexible since Brexit, is also adding upward pressure on prices. Although wage growth in Britain has slowed, at approximately 5%, it remains too high for the Bank of England to be confident about consumer price inflation quickly returning to its 2% target.
Moreover, employers report that an increase in taxes on them in April and a significant rise in the minimum wage are forcing them to raise their prices. Wednesday’s data indicated that the largest contributor to the July inflation rise was transport, particularly air fares.
Food and non-alcoholic drink prices—which the Bank of England considers significant influences on public perceptions of inflation—were 4.9% higher than a year earlier, marking the biggest increase since February 2024.
ONS data released last week painted a picture of an economy with enough momentum to keep inflation high. Output grew more than expected in the second quarter, and the labor market, while still experiencing job losses, showed signs of stabilization.
Data published earlier on Wednesday showed that basic pay settlements by British private-sector employers remained at 3% in the three months to July, according to a report from the data firm Brightmine, marking the eighth consecutive month at this rate.
