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Soaring Airline Fares Contribute to July's 3.8% Inflation Rate

Rising Inflation: The Office for National Statistics has reported a yearly consumer price increase of 3.8% in July.

Steep Increase in Airfares Contributes to July's Inflation Rate Reaching 3.8%
Steep Increase in Airfares Contributes to July's Inflation Rate Reaching 3.8%

Soaring Airline Fares Contribute to July's 3.8% Inflation Rate

In a recent analysis, Monica George Michail, an Associate Economist at the National Institute of Economic and Social Research (NIESR), has shed light on the rise in inflation in the UK.

According to the report, the annual Consumer Prices Index (CPI) inflation rate increased to 3.8% in July 2025, from 3.6% in June. The primary driver behind this rise was an increase in transport costs, particularly airfares.

However, it's important to note that inflation is forecasted to remain above 3% throughout 2025 and fall back closer to the Bank's 2% target by late 2026. Upside risks moving forward, especially from food prices and sustained wage pressures, may raise inflation expectations and force the Bank of England to be more cautious.

The Bank of England responded to the rising CPI inflation of 3.8% in July 2025 by lowering its key interest rate by a quarter point to 4% in August. The bank emphasized caution with further rate hikes due to weak economic growth prospects and instead considers regulatory easing measures to support the economy.

The largest contributions to price increases compared to last year are housing costs (up by 4.5%), energy costs (9.2%), water bills (26.1%), food prices (4.9%), and catering services (4.1%). However, the underlying inflation measure (excluding 5% of the highest and lowest price changes) remains low at 1.9%.

Businesses are facing cost pressures from the rise in the minimum wage and national insurance contributions. These factors, along with the ongoing effects of the pandemic and geopolitical factors, contribute to the uncertain economic outlook.

It's essential to mention that the content discussed in this article is restricted to corporate members, NiGEM subscribers, and NIESR partners. The article is authored by Monica George Michail, a renowned economist in the field of Macro-Economic Modelling and Forecasting.

In conclusion, while inflation has risen in July 2025, it is expected to remain above the Bank of England's target for the rest of the year. The bank's response to this rise, along with the ongoing cost pressures on businesses, paints a complex picture of the UK's economic outlook.

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