UK inflation surged to 3.8% in July, marking its strongest pace in a year and a half. The increase was driven largely by higher transport costs, including airfares and petrol, alongside rising electricity bills, soft drinks, and hotel prices. Food inflation also climbed sharply, with non-alcoholic beverages up nearly 5%, the steepest rise since February 2024. The Bank of England had forecast this headline figure, but the jump in services inflation to 5.0%—a key indicator it closely monitors—was slightly above expectations. Persistent wage growth and added employer costs, such as higher taxes and the minimum wage, continue to fuel price pressures. Financial markets reacted quickly, pushing back expectations for the BoE’s next rate cut to March 2026. Sterling strengthened modestly on the data, while UK consumer stocks gained, though homebuilders fell under pressure from concerns about prolonged higher borrowing costs. The Bank of England had forecast this headline figure, but the jump in services inflation to 5.0%—a key indicator it closely monitors—was slightly above expectations. Persistent wage growth and added employer costs, such as higher taxes and the minimum wage, continue to fuel price pressures. Financial markets reacted quickly, pushing back expectations for the BoE’s next rate cut to March 2026. Sterling strengthened modestly on the data, while UK consumer stocks gained, though homebuilders fell under pressure from concerns about prolonged higher borrowing costs. Financial markets reacted quickly, pushing back expectations for the BoE’s next rate cut to March 2026. Sterling strengthened modestly on the data, while UK consumer stocks gained, though homebuilders fell under pressure from concerns about prolonged higher borrowing costs.