UK Inflation Reheats to 3.8%—Travel, Hotels and Food Drive Biggest Upside Surprise Since Jan 2024

In July, consumer-price growth re-accelerated as both headline and core CPI hit 3.8 % y/y—above consensus and the fastest pace in 18 months. The degree of price pressures despite the Bank of England's most recent rate cut is highlighted by an unanticipated 0.1% monthly rise as opposed to an expected minor drop.

Services and food spearhead the favorable surprise. With peak-holiday demand, airfares soared 30.2% y/y; motor fuel and ocean prices also climbed. With a 3.4 % increase pushed by hotel rates, food and non-alcoholic beverages rose 4.9 % fueled by fresh vegetables and beverages. Offsetting these benefits only slightly, housing-related inflation dropped to 6.2% from 6.7%.

With service inflation still sticky and headline CPI back close to 4%, the numbers rule out more BoE near-term easing. While economists anticipate inflation declining toward 3.5% by year-end, they also advise that continuous salary growth and unstable travel or food prices could keep legislators watchful and extend pressure on household real incomes.