Official figures released today show that prices in the UK rose even faster than expected last month, reaching the highest level in 18 months.
Inflation accelerated from 3.6% in June to 3.8% in July, according to data from the Office for National Statistics (ONS). That means inflation is at its highest level since January 2024 and is still way above the Bank of England’s target of 2%.
Transport, particularly air fares, made the largest upward contribution to the monthly change. ONS Chief Economist Grant Fitzner said a “hefty” increase of 30.2% in air fares between June and July was the biggest jump for that period since the collection of monthly data began in 2001. He said it was “likely due to the timing of this year’s school holidays”, with the collection day for the ONS data overlapping with the start of the school holidays in a way it didn’t last year.
The cost of food and non-alcoholic beverages also contributed to the increase in prices, with the inflation rate in the sector accelerating from 4.5% to 4.9%. This was the fourth consecutive increase in the annual rate and the highest recorded since February 2024.
There were small upward effects to the change in the rate from 4 of the 11 food and non-alcoholic beverages classes, these being meat (mainly beef); sugar, jam, honey, syrups, chocolate and confectionery (mainly chocolate assortments); coffee, tea and cocoa (mainly instant coffee); and mineral waters, soft drinks and juices (mainly fresh orange juice).
“Today’s figures show that food and drink manufacturers are being squeezed on all sides,” said Jim Bligh, Director of Corporate Affairs and Packaging at the Food and Drink Federation (FDF).
“Energy prices remain high, and the cost of some key ingredients has surged in recent years. Cocoa prices are at a 45-year high, and both olive oil and butter prices have doubled since 2020.
“With high commodity prices, the new £1.4bn packaging tax, and increased National Insurance costs, it’s no surprise that many food and drink manufacturers have seen their costs increase by 10% or more this year.
“Manufacturers have absorbed as many of these costs as possible, but consumers will still see higher prices at the till. We expect that high food and drink inflation will persist through the year, so any fresh costs for businesses in the Autumn Budget will inevitably put yet more pressure on shoppers’ pockets.”
Earlier this month, policy makers at the Bank of England narrowly voted to cut interest rates to 4%, down from 4.5%, taking them to their lowest for more than two years.
The Bank’s latest forecast expects inflation to peak at 4% in September, which would not normally prompt further interest rate cuts. However, at the same time, the economy is struggling to grow, and the jobs market is uncertain, suggesting rate cuts might be needed to encourage consumer spending.
Bank of England governor Andrew Bailey revealed last week that this month’s decision to cut rates had been “finely balanced” and that the future course of interest rates was “a bit more uncertain frankly”.
He added: “Interest rates are still on a downward path. But any future rate cuts will need to be made gradually and carefully.”
Responding to the inflation news, Chancellor Rachel Reeves said: “We have taken the decisions needed to stabilise the public finances, and we’re a long way from the double-digit inflation we saw under the previous government, but there’s more to do to ease the cost of living.”
Shadow chancellor and Conservative Mel Stride commented: “Labour’s choices to tax jobs and ramp up borrowing are pushing up costs and stoking inflation. And the chancellor is gearing up to do it all over again in the autumn.”
NAM Implications:
- Who, apart from the government…
- …is surprised at the rise in inflation?
- Especially when the public perceive (and act upon) their belief that real food inflation is ‘much higher’.
- NB. The fact that the ONS Delays Release Of Retail Sales Data Over Quality Concerns…
- …has to add some degree of uncertainty to the mix, surely?
