A sharp spike in airfares and food prices drove UK inflation to 3.8% in July 2025, up from 3.6% in June, dashing hopes for further interest rate cuts this year, according to the Office for National Statistics on Wednesday, August 20, 2025. The unexpected rise, fueled by a record-breaking 30.2% surge in airfares—the largest since monthly data collection began in 2001—has pushed inflation to its highest level since January 2024, nearly double the Bank of England’s 2% target.

Economists, who had predicted a milder increase to 3.7%, now see diminishing prospects for monetary easing. “July’s figures likely rule out a September rate cut and cast doubt on further policy relaxation in 2025,” said Suren Thiru, economics director at ICAEW. The Bank of England recently lowered its key interest rate by a quarter point to 4% earlier this month, marking its fifth cut in a year from a 16-year high of 5.25%. This rate, a benchmark for mortgages, consumer, and business loans, is now at its lowest since March 2023.

The inflation surge is a setback for the Labour government, elected in July 2024 amid a cost-of-living crisis that previously saw inflation hit 11%. Treasury chief Rachel Reeves acknowledged the ongoing struggle, stating, “We have more to do to ease the burden on households.” Rising costs for essentials like food, coupled with skyrocketing airfares due to summer travel demand, have squeezed budgets, particularly for low-income families.

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Analysts point to supply chain disruptions and global fuel price hikes as key drivers of the airfare surge, while adverse weather and import reliance have pushed up food costs. The data has sparked concerns about persistent inflationary pressures, with markets now betting on tighter monetary policy. As households brace for higher living costs, the government faces mounting pressure to deliver relief, while the Bank of England grapples with balancing growth and price stability in an increasingly volatile economy.

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