Report Summary

Period covered: July 2025

3 minute read

Note: This report summary is one or two months behind the current month as standard reporting practice. The content is indicative only and incomplete with certain data undisclosed. Subscribe to access this data or take out a free 30 day subscription trial now.

Inflation

Headline inflation rises: CPI inflation picked up to xx% in July from xx% in June, the highest since January 2024 and the second consecutive upside surprise. Prices rose xx% on the month, against a fall a year ago.

Transport costs surge: Transport made the largest upward contribution. Airfares jumped xx% month-on-month, the sharpest July rise since records began in 2001, amplified by the timing of school holidays. Petrol and diesel prices also rose, narrowing the annual decline in motor fuel to -xx% from -xx%.

Services inflation accelerates: Services inflation rose to xx% from xx%, lifting core CPI higher. Hotel and catering prices added pressure, while rail and sea fares rose too. Good inflation also edged higher to xx% from xx% last month.

Food inflation climbs again: Food and drink inflation rose for the fourth month running, to xx% from xx%. Upward pressure was driven by beef, chocolate, coffee, and fruit juices, strengthening concerns about household budgets.

Restaurants and hotels: Prices across restaurants and hotels rose xx% year-on-year, compared with xx% in June. Late hotel bookings pushed accommodation costs higher, with cafés and catering also adding upward pressure.

Housing costs ease: Housing-related inflation eased to xx% from xx% with rent growth easing to its weakest level since 2022. This was partly offset by higher electricity bills following Ofgem’s July cap adjustment.

Cost backdrop: Manufacturers, particularly in food and drink, remain under strain. Cocoa prices have reached a 45-year high, olive oil and butter prices have doubled since 2020, and wage and tax increases are still biting. Many producers are also experiencing sizable cost increases.

Financial market reaction: The higher-than-expected inflation figures shifted market expectations. Hopes of a September rate cut have all but evaporated, with the first reduction not fully priced until spring 2026. Sterling strengthened modestly on the release.

Inflation outlook: July’s figures highlight that inflationary pressures are proving harder to shake off than expected.

The Bank of England still sees headline CPI drifting lower later this year, but the near-term path looks trickier with food inflation has pushed higher again, services remain sticky, and volatile items such as airfares are adding noise.

Policymakers will be wary of household expectations becoming unsettled, particularly with headline CPI now close to xx%. Wage growth is showing some signs of cooling, and rents are expected to moderate, which should take some pressure off core measures into the autumn.

Even so, the stronger July figures has lowered confidence in any further rate cut this year. Beyond that, the Bank is still expected to ease policy further in 2026, but the pace will be dictated by how quickly domestic inflation indicators soften.

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CPI inflation picked up to 3.8% in July from 3.6% in June, the highest since January 2024 and the second consecutive upside surprise.