UK inflation increased to 3.8% in July, creeping up from 3.6% in the year to June, the Office for National Statistics (ONS) has revealed.

This is the highest rate of inflation recorded since January 2024, when consumer price index (CPI) inflation increased to 4%.

Month-on-month, CPI inflation rose by 0.1% in July, after falling by 0.2% in the same period last year.

The ONS said that transport, particularly air fares which increased by 30.2% month-on-month, made the largest upward contribution to CPI inflation, with motor fuels also contributing to this increase.

The latest inflation update comes after the Bank of England lowered interest rates to 4% earlier this month.

Chief sales and marketing officer at Phoebus, Richard Pike, said: "Today’s rise in inflation adds weight to forecasts that price growth could reach 4% later this year, well above the Bank of England’s 2% target.

"This will, in turn, cast doubt on how quickly the Bank can move on interest rate reductions, with Governor Andrew Bailey recently warning that cuts must be made ‘gradually and carefully’. For borrowers, any delay to rate cuts means higher repayment pressures for longer, particularly for those on variable rates or coming to the end of fixed deals."

Personal finance analyst at Bestinvest, Alice Haine, added: "An uptick in inflation can be a cause for concern for consumers as it signals ever-higher prices for everyday essentials. This erodes purchasing power, especially for lower-income households, who spend a larger proportion of their income on necessities.

"Add to that the extended freeze on income tax thresholds, which means more of people’s earnings are dragged deeper into taxable territory as wages rise – and even a modest increase in inflation can feel unsettling.

"The good news is that inflation is expected to ease after September, perhaps with a few blips along the way, though how quickly that will translate into lower borrowing costs remains uncertain – especially with external pressures such as global trade pressures and geopolitical uncertainty still in play."

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