Inflation rose more strongly that expected last month, up 3.8% up from 3.6% in June and is forecast to reach 4% by the end of the year.
Office for National Statistics (ONS) chief economist Grant Fitzner said the main driver of inflation was higher air fares, which experienced the largest July increase since the ONS began collecting that data on a monthly basis in 2001.
Economists had expected inflation to rise by 3.7%, though the Bank of England forecast forecast a 3.76% increase.
The rise is the largest since January 2024 and analysts say it may delay further interest rate cuts.
The Bank’s monetary policy committee last month cut the base rate for a fifth time ito 4%.
However, the narrow decision came after an unprecedented second vote and was accompanied by a statement confirming the committee’s persistent concerns on rising price pressures.
Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services, said: “Following June’s surprisingly strong consumer price pressures, July’s data confirms that inflationary pressures are building towards the Bank of England’s upwardly adjusted 4.0% forecast peak next month.”
George Holmes, managing director of Aurora Capital, said: “This above expected increase shows that the inflation problem isn’t going away any time soon. It means costs remain stubbornly high for small businesses, and the chance of further relief on borrowing is fading.
“The prospect of interest rates being held for longer is bad news for investment and for firms looking to take on new finance.”
Chancellor Rachel Reeves said: “We have 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 there’s more to do to ease the cost of living.
“That’s why we’ve raised the minimum wage, extended the £3 bus fare cap, expanded free school meals to over half a million more children, and are rolling out free breakfast clubs for every child in the country.”
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