UK inflation rises to an unexpected 3.8%, as confirmed by the latest figures from the Office of National Statistics (ONS). Previously at 3.6%, the rate was forecast to rise but not quite as high as it has, with economists predicting 3.7%. This latest figure shows the highest increase in inflation since January 2024, when it reached 4%.
Why has inflation risen?
The main drivers of the increase in inflation are airfares and food prices. Airfares rose by 15.5% compared with the previous year and jumped by 30.2% from June. In comparison, the increase between June and July in 2024 was 13.3%, showing that airfares have more than doubled in the same period this year. The reason for this is that school summer holidays began earlier this year, causing much of this increase. Nonetheless, this is the biggest July increase since the ONS began to collect inflation data for air travel on a monthly basis back in 2001.
Food prices have also continued to rise, with inflation for food and non-alcoholic beverages being at 4.9% in the year to July. This is an increase from 4.5% recorded in the year to June. Food inflation is now at its highest rate since February 2024, following its fourth consecutive increase. The biggest price rises were for coffee, chocolate, meat, sugar and fresh orange juice. Fuel costs have also risen compared with a drop in prices at the same time last year.
How does this affect interest rates?
Earlier this month, the base rate was cut to 4% and economists had predicted a further cut later in the year. The Bank of England, however, stated that caution is needed while high inflation persists, especially as inflation figures had jumped in the year to June. The further jump in inflation in the year to July has now diminished some economists’ optimism over another interest rate cut. Economists actually anticipate that inflation will reach 4% in September before coming back down again.
House price inflation
The figures have also been released for UK house prices. They show an average house price increase of 3.7% in the year to June. This is a slowdown compared with a 3.9% increase in the year to May. The average house prices have increased to £291,000 in England, £210,000 in Wales and £192,000 in Scotland. In the private rental sector, the average monthly rent has risen to £1,343, which is a 5.9% increase.
Discuss your mortgage concerns with our expert brokers
With the cost of living remaining so high and a further interest rate cut looking out of reach this year, it’s understandable that you may have concerns over your mortgage. Give us a call on 01322 907 000 and our brokers will be happy to discuss your circumstances and talk through your concerns, providing you with any possible solutions.