In July 2025, UK core inflation rose to 3.8%, driven by higher air fares and fuel costs, the largest increase since January 2024. This surge may prevent the Bank of England from cutting rates further this year, despite expectations for a reduction. The UK’s economy also grew by 0.3% from April to June 2025, reflecting rising taxation and higher prices.

Transportation costs were a major factor in the UK’s inflation increase, with prices rising 3.2% in July 2025 compared to 1.7% in June. Airfares rose significantly by 30.2% between June and July 2025, driving up inflation. Rising fuel costs also contributed, with petrol and diesel prices increasing from the previous year.

The likelihood of another rate cut by the Bank of England in 2025 seems slim, with experts suggesting a pause in further reductions. The Monetary Policy Committee’s recent vote was the closest in its history, indicating challenges to the anticipated quarterly rate cuts in 2025. Some investment banks remain cautious due to weakening labor market conditions in the UK.

Read more at Morningstar: UK Inflation Higher Than Expected in July as Airfares Jump