Inflation hits 3.8%: industry experts share their insights

The latest inflation data shows the Consumer Prices Index (CPI) has risen to 3.8% in July, up from 3.6% in June, marking a persistent challenge for consumers and financial markets alike. With the Bank of England forecasting inflation to peak at 4% before it begins to decline, financial advisers face the difficult task of guiding clients through a period of economic uncertainty.

Industry experts and professionals have shared their thoughts to the latest data.

Lindsay James, investment strategist at Quilter comments :

“The UK’s inflation redux continues apace, with the Consumer Prices Index rising to 3.8% in July, up from 3.6% in June. With the Bank of England now forecasting inflation to peak at 4%, before falling back, there is considerable pain yet to come for consumers at a time when economic weakness in the UK is becoming further exposed.

July’s inflation reading is a noisy one, what with the summer holidays and activities having an impact on the monthly rate of change. Indeed, Oasis’ long-anticipated reunion tour will have bumped up hotel prices, while the timing of the school holidays has led to a significant increase in airfares, the largest July increase since the data collection for airfares moved to monthly.

Services inflation continues to be a key factor in the overall rate and remains sticky, hitting 5%. Meanwhile, food prices continue to rise at a level higher than overall inflation as suppliers and supermarkets account for higher labour and regulatory costs following the increase in national insurance contributions and the national living wage. Uncertainty remains on what impact US trade policy will have on the cost of goods in the UK, but given tariffs are beginning to feed into the data globally, it is not likely to be helping the situation.

As a result, the stagflationary environment facing the UK is getting further embedded. Growth, albeit better than expected, is back to being anaemic. The labour market is showing signs of strain, while bond yields are picking up again. The UK faces a moment of reckoning this Autumn when Rachel Reeves will be forced to consider either her fiscal rules or her pledges not to raise taxes for working people given the fiscal shortfall. Tax changes around the edges and lack of deeper spending cuts appears to simply not to satisfy markets any longer.

All of this makes it incredibly difficult to predict the path of interest rates. The weak growth and fragile state of employment in the UK should enable the Bank of England to cut rates again at least once this year, but if inflation continues its march upwards and gets stuck at any point on the way back down, then policy decisions may need to be backtracked.”

Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;

“Inflation was always likely to rise today, but this report is definitely on the hotter side. In particular, services inflation, which the Bank of England watches very closely as a measure of underlying inflation pressure, popping higher will be a source of concern among policymakers. With inflation likely to rise further in coming months and wage growth gradually slowing, it is quite possible we move back to a period of sustained negative wage growth. All of which will keep the economy feeling more “stagflationary” than comfortable. The outlook for interest rates is therefore looking more uncertain. We continue to expect another cut in November, but the risk of a more sustained pause in the cutting cycle has increased.”

Susannah Streeter, head of money and finance, Hargreaves Lansdown comments:

“The pressure cooker of prices is on the boil again, with rising air fares, hotel bills and groceries keeping costs steamy. Inflation has kept track with what the Bank of England predicted, rising to 3.8% – veering even further away from the 2% target. As people ringfenced budgets to enjoy themselves on holiday, they were willing to shell out for expensive seats on planes, with the cost of airfares rising by 30.2% between June and July. There appeared to be a small lift in spending around the Oasis tour, with hotel and restaurant spending rising 3.4%. However, Taylor Swift still had the edge when it came to the inflation effect, given that the prices jumped more markedly when she toured the UK last June, with a monthly rise of 6.3% clocked up for the sector.

Although the pattern of spending in July may end up being more temporary, the rise in the headline rate is set to keep Bank of England policymakers cautious. Some will worry that the persistent increase in everyday prices will propel more higher wage demands and make inflation harder to cool. The Bank has already forecast that it expects prices to peak at 4% next month. But there will also be niggles of worry about the reliability of the data they can work with going forward, given that the next retail sales snapshot is being delayed due to problems at the ONS.

Borrowers look set to need lots more patience, given another interest rate cut is not likely in the next few months, it’s touch and go for December, with a reduction not fully priced in by financial markets until the spring. This is likely to keep gilt yields higher, and cause continued headaches for the government, given it pushes up borrowing costs, and keeps the public finances in a fragile state.”

Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures:

“Households didn’t need the official data to know that many prices have been edging up again, stretching already tight budgets. Headline CPI is now at levels not seen since early 2024 and the Bank of England has warned things will get worse before inflation gradually fades back towards that elusive 2% target.

Everyone’s inflation experience will be different, but all those parents who saved for months to take the family on a post-school break will have had first-hand experience of one of the main drivers of July’s larger than expected jump.

It always feels unfair when you watch airfares shoot up on the first day of parents’ six-week summer window and it’s notable that with the holidays falling earlier in July this year, the cost of a week in the sun would have been subject to that school holiday premium and reflected in this month’s figures.

Petrol prices had also edged up on the previous month and bars, restaurants and hotels all saw prices creep up, making a UK break more expensive as well. A recent survey from the UK hospitality sector and other sector industry bodies reported that 79% of those surveyed had felt compelled to put up prices due to the impact of increased labour costs.

But it’s that weekly trip to the local supermarket which gives most of us the greatest insight into our cost of living. For the fourth month in a row food inflation has risen, up to 4.9% in July – a level not seen in more than a year.

Meat, coffee, orange juice and chocolate were amongst the items putting the biggest pressures on budgets. With UK farmers highlighting the expected impact of a dry summer on food production, many households will be worried that it’s going to take a considerable amount of time before these higher prices unwind.

For UK rate setters it’s the hike in service sector inflation which is likely to narrow their opportunity to cut the base rate further this year. Looking at market expectation this morning, worries that persistent inflation will continue to influence pay awards despite a cooling labour market makes it increasingly likely we’ve seen the last cut for 2025.

With energy bills also expected to rise in the autumn and continued speculation about potential tax hikes in the upcoming Budget, caution is likely to be at the forefront of many people’s minds.

To add further pressure to many budgets comes the expectation that rail fares could jump by a whopping 5.8% next year after July’s RPI number came in at 4.8%.”

Michael Browne, Investment Strategist at Franklin Templeton Institute, comments on today’s CPI numbers:
“The importance of today’s CPI report was highlighted in the last MPC meeting, where the committee was split, the hawks looking at near terms concern on food, energy and services prices, the majority acknowledging the weak economy, slack labour markets and growing output gap. Today’s numbers help the hawks, although the worst of their inflationary fears did not evolve. Services rose slightly but the root cause was holidays expenditure: airline prices jumping as school holidays started and hotels and restaurants, no doubt reflecting the same. The comment in the MPC report that even the Hawks think this is short term, has not received enough scrutiny.

But a “Bad” inflation figure this morning does little to help long term rates, even though a cut by the MPC in November is very likely. These have been rising due to fears around the rising budget deficit, caused by growing government spending and slower growth, the latter a by-product of the MPC rate hikes two years ago. Finding new sources of taxation has been this summer’s holiday project for the Treasury. Whatever inflation, the MPC or the economy does will count for little to the bond market vigilantes until the books are balanced. If they are, in October, it would set the UK apart from other G7 economies and make the UK an attractive opportunity. If not, it’s more of the same.”

Rob Morgan, Chief Investment Analyst at Charles Stanley comments:

“The pressure on households and policymakers continues amid hot and sticky inflation and echoes of the cost-of-living squeeze.

UK inflation remains obstinately high with July’s CPI a sticky 3.8% — up from June’s 3.6% figure and slightly above consensus forecasts.

This increase is largely attributed to seasonal pressures, including higher travel and accommodation costs during the school holidays, and persistent food price inflation. A surge in hotel rates – partly driven by major summer events like the Oasis reunion tour – was also a contributing factor.

Price rises are expected to moderate in 2026, but for the time being household budgets remain constrained by higher costs on the one hand and a gradually slowing jobs market on the other.

Sticky inflation also poses a dilemma for the BoE with some members of the interest rate voting committee concerned about possible second round effects. Inflation well above the 2% target for a sustained period risks price rises becoming engrained in consumer expectations and company decisions.”

Will the BoE deliver another interest rate cut this year?

Inflationary momentum threatens to extend the tug-of-war among Threadneedle Street policymakers and stall near-term rate cuts.

Some MPC members previously saw enough warning signs to believe a demand slowdown — and easing price pressures — is imminent. But stubborn inflation, alongside better economic figures since the August meeting, challenge that view.

Stronger-than-expected jobs data and reasonable second quarter growth offer reassurance about the economy’s resilience. Furthermore, policymakers may increasingly view falling job numbers as a misleading signal — more a response to rising employment costs than a true drop in demand. Wage growth remains strong and could yet be the key driver of price pressures, particularly through services inflation.

With September’s inflation still projected to be twice the Bank of England’s target, the optics are going to be tough for further easing — and sub-4% interest rates may remain out of reach until 2026.

Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, said: “July’s inflation data shows that price pressures remain stubborn, and this month the long-awaited return of Oasis looks to be a contributing factor – they’ve been driving up hospitality prices in the cities hosting their gigs. We can’t blame the Gallaghers for everything, however, with food and air fares continuing to impact the headline rate of inflation. These figures come in the context of a divided Bank of England – the Bank needed a second round of voting to cut interest rates by 0.25% on 7^th August – and with CPI forecast to rise as high as 4% in September, it looks likely extreme caution will be applied before any further cuts.

For borrowers, this could mean costs are higher for longer, particularly for mortgage holders and those with other forms of debt. On the other hand, savers could benefit, with some best buy easy-access savings accounts still offering an inflation-beating rate. Crucially, there’s a wide variation, so it’s worth shopping around. With inflation creeping up, any cash gains are still likely to be marginal in real terms – those willing and able to accept an element of risk could consider investing for a better chance of substantial returns above inflation, perhaps through a tax efficient product like a stocks and shares ISA or, taking a longer-term view, a pension.”

Tim Graf, Head of Macro Strategy, EMEA at State Street Markets, reacts to today’s UK CPI data:

“Inflation stickiness continues for another month, with early clues from our survey of online prices this month suggesting August may well see a continuation of this trend. With the Bank of England now divided on the need to ease further, their maintenance of a quarte

Scott Gardner, investment strategist at J.P. Morgan owned digital wealth manager, Nutmeg, said:

“The UK is battling a prolonged period of strong inflation with persistent price rises forcing the headline rate to reach its highest level since the start of 2024. Headline inflation came in a smidge higher during July, with core inflation remaining sticky and closely watched services inflation edging upwards.

What lurks ahead could make for even tougher reading with forecasts suggesting that inflation will continue to rise in the coming months and peak at 4%, meaning businesses and consumers will pay more. UK consumers are increasingly being squeezed by rising food prices which is putting pressure on household budgets and leading many to cut back. That said, cheaper energy and lower petrol prices are providing some relief.

Services inflation is also particularly challenging and shows little sign of coming down soon. Service-focused businesses are increasing their prices to cover the costs of rising wages and the hike to National Insurance contributions for employers.

While most of the focus right now is on the weakening jobs market, this bout of sticky inflation is making a fourth rate cut this year harder for the Bank of England to justify. The Bank is clearly having to tread carefully, and will perhaps have to be even more cautious in the future, as inflation remains persistent. Inflation edging closer to 4% doesn’t make future decisions any easier.”

Derrick Dunne, CEO of YOU Asset Management, has commented on this morning’s inflation data:

“Today’s inflation reading will alarm UK policymakers. Coupled with rising wages and improving economic growth data, it could take interest rate cuts off the table in the near term.

The expectation is that inflation will come down over the next few months as recent increases in energy prices, food prices, and some regulated prices such as water bills, start to come out of the data. It should move closer to the Bank’s 2% target in 2026 . However, this reading suggests that pricing pressures may be more persistent than hoped.

High inflation will put a strain on households. Wage inflation is only just running ahead of prices and finances will be squeezed. The UK desperately needs consumers to feel more confident to support economic growth, and rising prices are a significant hindrance to the return of any sprightliness in the UK economy.

Anyone who is unsure about how this could impact their personal finances should speak to a financial planner.”

David Morrison, Senior Market Analyst at FCA-regulated fintech and financial services provider, Trade Nation, comments:

“UK inflation edged up in July 2025, with CPIH rising 4.2% (from 4.1% in June) and CPI rising 3.8% (from 3.6%). Monthly CPI rose 0.1%, while CPIH was flat. Transport, especially air fares, pushed rates higher, partly offset by housing costs. Core measures were broadly stable, with goods inflation picking up slightly and services inflation holding firm.

The uptick in inflation comes after the Bank of England cut rates earlier this month. That’s an unfortunate look, although economists can argue that the rise in air fares may be a one-off. There was a swift market reaction to the data as traders started to price out the probability of further cuts in the near term. This saw sterling rally and FTSE 100 stock index futures fall.”

Lucy Smith, Senior Investment Manager at Killik & Co said:

“The Bank of England is now likely to delay any cuts to interest rates as it remains wary of inflation becoming entrenched. Businesses will remain cautious and consumers will expect to see their household budgets stretched.

The Bank of England recently pointed towards the lasting impact of the coronavirus pandemic and the Russia-Ukraine war as key drivers of inflation. However, new data from the ONS showed an upgraded economic outlook for the UK, and furthermore the previously published growth rate for 2023 has just been revised upwards. Additionally, given that more recently President Trump met both the Russian and Ukrainian presidents, there is an optimism about a potential resolution with the hope that some of these challenges could be mitigated. Data has also shown that employees’ average earnings have outpaced inflation at 5.0% up to June 2025, which should help consumers not feel the pinch of higher inflation.

Consumers should continue to think about the long-term and focus on saving what they can, whilst considering their options when it comes to investing. It is important to consider the returns in real terms, rather than letting inflation erode the value over time.”

Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services comments:

“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.

Today’s data confirms that headline prices have increased to 3.8%, a reflection of both rising fuel and food prices, the latter of which is now on a clear upward trajectory which may not peak until later in the year. With the Bank of England’s Monetary Policy Committee (MPC) paying close attention to trends in service sector inflation, today’s confirmation that prices nudged higher again last month, from 4.7% to 5%, will cause concern.”

At its 7th August rate-setting meeting, the MPC elected to cut the base rate for a fifth time in this slow-paced cycle, to 4%. However, the decision passed by a razor-edge margin after an unprecedented second vote and was accompanied by a hawkish tilt in the accompanying statement’s language, reflecting the Committee’s persistent concerns regarding rising price pressures.

Today’s data is likely to harden rate-setters’ resolve that any future rate cuts will be conditional on consumer prices adjusting to a lower pathway. With a peak in prices not anticipated until later in the year, the Bank’s scope to provide much by way of monetary policy offset will be severely limited, in the wake of what looks likely to be another tough Budget.”

Tim Graf, Head of Macro Strategy, EMEA at State Street Markets, reacts to today’s UK CPI data:

Mike Randall, CEO at Simply Asset Finance, says: “Today’s rise in inflation will be unwelcome for many, signalling higher prices across supply chains and further tightening margins. This comes at a time when businesses are still grappling with April’s NI hike, and speculation looms around further cost increases in the Autumn Budget.

While this could dishearten some SMEs, most remain optimistic and are waiting for the right moment to invest in growth. The Government now needs to recognise the untapped potential at its fingertips and focus on the missing piece: creating an environment that fosters entrepreneurialism, rewards risk-taking, and channels funding to the firms driving recovery.”

Commenting on the uptick in UK inflation, Daniel Austin, CEO and co-founder at ASK Partners, said: “Today’s rise in UK inflation demonstrates how the balancing act between volatile global conditions, driven by Trump-era uncertainty and domestic policy shifts, is becoming harder to maintain. With the recent interest rate cut bringing the base rate to 4%, and analysts predicting two further rate cuts this year, many will be asking what this sticky inflation might mean for the Bank of England.

For homeowners and buyers, hopes of lower borrowing costs remain following the recent rate cut, but persistently elevated fixed mortgage rates could delay any real relief. With forecasters expecting the UK’s 2% inflation target to remain unmet for the remainder of the year, homeowners look set to face continued mortgage cost pressures for some time.

Investors and developers will also be watching closely. Appetite remains strong in resilient sectors like co-living, build-to-rent and storage, where supply constraints and healthy demand keep capital active. But a stable, downward inflation trajectory will be key. If these predicted BoE rate cuts do materialise, it could reignite activity. Meanwhile, there may be opportunity present for the most nimble of investors to capitalise on a potentially cooler market.”

Jonathon Marchant, Fund Manager at Mattioli Woods comments:

“The latest UK CPI data showed inflation running at 3.8% year-on-year, marginally exceeding the 3.7% consensus forecast and marking an unwelcome surprise for policymakers. Notably, services inflation accelerated from 4.7% to 5.0%, while exceeding consensus at 4.8%. The latest figures underscore the challenging reality of an economy facing both slowing growth and persistent price pressures.

With inflation moving further away from the Bank of England’s 2% target, the case for additional rate cuts in 2025 has weakened. The recent narrow vote on interest rates now appears prescient, suggesting policymakers may need to maintain a more hawkish stance despite economic headwinds. Today’s data suggests they may need to pause their easing cycle, prioritising price stability over growth support as the economy grapples with the twin threats of stagnation and persistent inflation.

The spectre of stagflation looms over the UK economy. Last year’s Autumn Budget has continued to weigh on business confidence while imposing significant additional costs on employers, expenses that will likely filter through to consumers via higher prices.

With this year’s Autumn Budget approaching, the Monetary Policy Committee may prefer to pause and assess the Budget’s consequences before implementing further rate reductions. This wait-and-see approach reflects the challenging balancing act between supporting growth and maintaining price stability in an increasingly complex economic environment.”

Richard Flax, Chief Investment Officer at Moneyfarm comments: “UK CPI rose to 3.8% year-on-year in July, up from 3.6% in June and above both market expectations (3.7%) and the Bank of England’s forecast (3.76%). This marks the highest annual inflation rate since January 2024, driven by rising airfares, food prices, and energy costs. Structural factors like April’s increase in employers’ national insurance and minimum wage adjustments are also feeding through to consumer prices.

The Bank expects inflation to peak at 4% in September before easing in 2026. However, July’s data complicates the outlook. Persistent price pressures argue against premature rate cuts, while weakening growth and employment suggest the need for caution.

Markets still anticipate rate cuts later this year, but July’s figures highlight the challenge: balancing inflation control with the growing drag from tight monetary policy.”

Chris Beauchamp, Chief Market Analyst at investment platform IG comments:

“Following hard on the heels of surging gilt yields comes a fresh rise in UK inflation. While Westminster plots ways to squeeze more from UK taxpayers, it seems that household finances are facing further pressure as prices rise.

But while the headline seems to make last month’s rate cut look misplaced, below the surface it seems several key components drove the rise, and a focus on the less volatile elements suggests that the picture is more nuanced. Inflation isn’t beaten, but it is perhaps being tamed.”