UK consumer price inflation rose to 3.8 per cent in the year to July 2025, up from 3.6 per cent the previous month.
The rise marks the highest rate of inflation since January 2024 and signals increasing pressure on household budgets across the UK.
The rise in transportation and food prices
Transport was the main driver behind the inflation increase. Airfares surged by an extraordinary 30.2 per cent between June and July—an unprecedented July jump since monthly data collection began in 2001—likely tied to changes in the timing of school summer holidays.
Similarly, the cost of petrol and diesel rose month-on-month—motor fuel prices still showed a year-on-year decline, but the recent increases added upward pressure overall.
Food and non-alcoholic beverages inflation also accelerated, hitting 4.9 per cent—the highest annual increase since February 2024—as key items such as meat, chocolate, coffee and fruit juices rose notably.
Owner-occupiers’ housing costs soften, but electricity adds pressure
Housing-related costs eased slightly. Owner-occupiers’ housing costs (OOH) rose by 5.5 per cent over the year to July, down from 6.4 per cent in June, and even registered a small monthly fall—marking the first such drop since March 2010.
Rents rose more slowly too, at 4.5 per cent compared with 5.8 per cent a month earlier.
In contrast, electricity prices climbed by 8.0 per cent year-on-year, boosting inflation further.
Broader economic context and retail implications
The UK now has the fastest inflation rate among G7 economies, reinforcing expectations that the Bank of England will delay further interest rate cuts—markets now anticipate a quarter-point cut in spring 2026 rather than later this year.
Retailers in the food sector face sustained inflation—food price inflation has been rising for six months in a row and is set to further affect shopping habits.
Meanwhile, for consumers, the combination of rising travel, food and energy cost pressures means household budgets remain under strain, despite some easing in housing-related costs.
