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Inflation rockets to 18-month high of 3.8% as experts say Labour needs to 'own this rise'

ended 20. August 2025

INFLATION has rocketed to an 18-month high of 3.8% in July in a worse-than-expected result with experts saying Labour needs to “own this rise”.

The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to July 2025, up from 3.6% in the 12 months to June, according to data published this morning. 

On a monthly basis, CPI rose by 0.1% in July 2025, compared with a fall of 0.2% in July 2024.

Transport, particularly air fares, made the largest upward contribution to the monthly change in CPI annual rates. 

Core CPI, excluding energy, food, alcohol and tobacco, rose by 3.8% in the 12 months to July 2025, up slightly from 3.7% in the 12 months to June. 

The CPI goods annual rate rose from 2.4% to 2.7%, while the CPI services annual rate rose from 4.7% to 5%.

Chris Barry, Director at London-based Thomas Legal, warned of a “dangerous cocktail” of rising inflation and interest rates dropping.

He added: "Today’s inflation data is starting to reveal a real problem and sadly it’s not unexpected. Areas of inflation on a sharp rise are business-led. Prices are continuing to increase due to the ever-growing cost of hiring staff along with the UK's heavy reliance on imports. 

“Inflation rising and interest rates dropping is a dangerous cocktail and is happening really due to lack of economic growth. This will no doubt make further base rate reductions this year unlikely, unless the growth forecast gets substantially worse.”

Riz Malik, Director at Southend-on-Sea-based R3 Wealth, added: “Regardless of who is in office, no one seems to be able to tame inflation, which is so far away from the government's target you need to go to Specsavers to see it.

"Those with savings in cash are getting hammered by the silent erosion of wealth. Those expecting rapid rate cuts probably have more chance of winning the Euromillions.”

Harry Mills, Director at London-based Oku Markets, commented: “UK inflation is hotting up. The Bank of England (BoE) cut interest rates by a quarter-point in a historic split decision earlier this month. Now, today's data will reaffirm the decision of the more hawkish members, and may help dissuade further cuts. Markets had reduced bets on further cuts from the BoE this year to zero, in a hawkish repricing – underlined by today's hot inflation print.”

David Belle, Founder and Trader at Fink Money, provided some more context for the data.

He said: “To add context here, the US inflation rate is at 2.7%. This is important, as it contributes to the understanding of bond yields and why there is such a difference in borrowing costs between the UK and everyone else. This is, quite frankly, a disaster, since unemployment is creeping up and lots of the unemployment number is actually held in long term sick data. 

"If we take the view as well that total hours worked is at a high whilst productivity has not increased, we must ask what is fuelling this inflation... Because it's not coming from an overheated labour market. 

"It seems like this party is on a speedrun to completely destroy the nation more than the Tories, and they're doing a fine job at it. What is interesting is none of them seem to be self aware - no resignations or disagreements seem to be happening. I think they're all simply very dim people.”

Rohit Kohli, Director at Romsey-based The Mortgage Stop, said Labour needs to “own this rise”.

He continued: "This morning’s inflation figures are a real blow. At 3.8%, it’s higher than expected and with forecasts pointing to 4% by year-end, any chance of further rate cuts will have reduced significantly. Labour were quick to claim credit when inflation fell. 

"Now they need to own this rise. It’s not a blip, it’s the result of government policy. Rachel Reeves talks about stability and growth, but what we’re seeing is rising inflation, economic stagnation and a government completely out of its depth. 

“To call this a 'growth plan' is frankly laughable. The BoE will be watching this closely, and so should borrowers. Anyone on a tracker or nearing the end of a fixed deal needs to take note.”

Michelle Lawson, Director at Fareham-based Lawson Financial, added: "Yet another disaster for Labour this morning to add to their long list of self-created woes. The impact is far greater as the knock-on effect is passed to the public purse, too, which will exacerbate it further. 

“This government need to wake up, listen to what the experts are telling them and stop before any further damage is done.”

Craig Fish, Director at London-based Lodestone Mortgages, said “this is not a pretty picture”.

He continued: "Rachel has broken the UK but it's still set to get worse with inflation expected to rise further. The UK is out of money and those in charge are out of ideas, which is the main reason that many are choosing to leave the UK. 

“The BoE may not drop rates any further this year, and you can expect to see mortgage rates increasing. This is not a pretty picture. Rachel please own up to this mess, stand down and let someone with more knowledge than you start applying the bandages.”

Elliott Culley, Director at Hayling Island-based Switch Mortgage Finance, said the result was worse than expected.

He added: "Inflation increasing to 3.8% is higher than expected and shows there is still a long way to go for inflation to reach the manageable levels the Bank of England expect. 

"Mortgage rates have stagnated over the past few weeks and there may be some small increases in current rates available of the back of this data."
 

14 responses from the Newspage community

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Editor
Chris Barry
Director at Thomas Legal
Today’s inflation data is starting to reveal a real problem and sadly it’s not unexpected. Areas of inflation on a sharp rise are business-led. Prices are continuing to increase due to the ever-growing cost of hiring staff along with the UK's heavy reliance on imports. Inflation rising and interest rates dropping is a dangerous cocktail and is happening really due to lack of economic growth. This will no doubt make further base rate reductions this year unlikely, unless the growth forecast gets substantially worse.
Star Quote
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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Regardless of who is in office, no one seems fo be able to tame inflation, which is so far away from the government's target you need to go to Specsavers to see it. Those with savings in cash are getting hammered by the silent erosion of wealth. Those expecting rapid rate cuts probably have more chance of winning the Euromillions.
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Editor
Rohit Kohli
Director at The Mortgage Stop
This morning’s inflation figures are a real blow. At 3.8%, it’s higher than expected and with forecasts pointing to 4% by year-end, any chance of further rate cuts will have reduced significantly. Labour were quick to claim credit when inflation fell. Now they need to own this rise. It’s not a blip, it’s the result of government policy. Rachel Reeves talks about stability and growth, but what we’re seeing is rising inflation, economic stagnation and a government completely out of its depth. To call this a 'growth plan' is frankly laughable. The Bank of England will be watching this closely, and so should borrowers. Anyone on a tracker or nearing the end of a fixed deal needs to take note.
Copy

Editor
Michelle Lawson
Director at Lawson Financial
Yet another disaster for Labour this morning to add to their long list of self-created woes. The impact is far greater as the knock-on effect is passed to the public purse, too, which will exacerbate it further. This government need to wake up, listen to what the experts are telling them and stop before any further damage is done.
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Editor
Craig Fish
Director at Lodestone Mortgages
Rachel has broken the UK but it's still set to get worse with inflation expected to rise further. The UK is out of money and those in charge are out of ideas, which is the main reason that many are choosing to leave the UK. The Bank of England may not drop rates any further this year, and you can expect to see mortgage rates increasing. This is not a pretty picture. Rachel please own up to this mess, stand down and let someone with more knowledge than you start applying the bandages.
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Editor
Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Inflation shock slams the brakes on hopes of cheaper mortgages for millions. With CPI rising to 3.8% and services inflation climbing to 5%, the Bank of England’s hands are tied. Anyone coming to the end of a fixed deal may find remortgaging tougher than hoped, and first-time buyers will face a steeper climb onto the ladder as rising costs reduce affordability. Lenders are still competing hard for business, but the dream of rapidly falling mortgage rates has just hit a reality check.
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Editor
Anita Wright
Chartered Financial Planner at Ribble Wealth Management
It is impacting business both directly and indirectly. Directly, the rising costs of services continue to push up operating expenses. Indirectly, inflation reshapes people’s spending sentiment. Even though headline inflation is lower than its recent peaks, the persistence of core inflation around 3.8% suggests that price pressures remain embedded in the system. Successive governments have leaned heavily on public spending to support the economy, particularly post-pandemic, which is inherently inflationary. While the BoE has tightened rates, fiscal policy has often pulled in the opposite direction. This uptick makes it harder for the BoE to justify rate cuts, giving the MPC cover to keep rates higher for longer. Sterling is likely to benefit in the short term from the perception that UK rates will remain higher for longer relative to peers. However, the combination of persistent inflation and weak growth points towards a stagflationary environment, which undermines investor confidence.
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Editor
Scott Gallacher
Director at Rowley Turton
Yet more bad news for the Chancellor — and the country — though it’s hard to pin the root cause directly on Rachel Reeves. Like many businesses, we’re feeling it in the rising cost of everything from paper to coffee, and it won’t be long before that feeds into higher wage demands, squeezing profitability further.

For savers, higher inflation quietly eats away at the value of their money unless they’re on a decent rate — too many are still stuck in old accounts paying next to nothing.

For borrowers, it’s a double-edged sword: inflation chips away at the real value of their debt, but it also keeps lower, i.e. cheaper, mortgage rate off the table. In short, they’ll be paying more, for longer.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
All financial indicators of the economy continue to go in the wrong direction, with today’s inflation increase being the latest. With unemployment increasing, vacancies reducing, insolvency on the rise and inflation heading upwards, the economy is broken, much like the government’s promise of growth.
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Platinum
Elliott Culley
Director at Switch Mortgage Finance
Inflation increasing to 3.8% is higher than expected and shows there is still a long way to go for inflation to reach the manageable levels the Bank of England expect. Mortgage rates have stagnated over the past few weeks and there may be some small increases in current rates available of the back of this data.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
Services inflation at 5% is the real killer here, hitting everything from legal fees to maintenance contracts. As someone managing multiple projects, I can tell you that every tradesman, surveyor, and solicitor has been hiking prices month on month. The government's employer national insurance raid has simply accelerated this trend, forcing businesses to pass costs straight through to customers rather than absorb them.

The Bank of England now faces an impossible choice. Keep rates low and watch inflation embed itself deeper, or raise them and crush what little economic momentum we have left. For property investors, this is a nightmare scenario. Mortgage costs remain punitive while rental yields get squeezed by rising maintenance expenses and regulatory costs. Meanwhile, savers continue getting mugged by negative real returns.

The pound will weaken as markets price in stagflation rather than growth. Rachel Reeves promised stability but successfully delivered the worst of both worlds.
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Premium
David Belle
Founder and Trader at Fink Money
To add context here, the US inflation rate is at 2.7%. This is important, as it contributes to the understanding of bond yields and why there is such a difference in borrowing costs between the UK and everyone else. This is, quite frankly, a disaster. Unemployment is creeping up and lots of the unemployment number is actually held in long term sick data. If we take the view as well that total hours worked is at a high whilst productivity has not increased, we must ask what is fuelling this inflation, because it's not coming from an overheated labour market. It seems like this party is on a speedrun to completely destroy the nation more than the Tories, and they're doing a fine job at it. What is interesting is none of them seem to be self aware - no resignations or disagreements seem to be happening. I think they're all simply very dim people.
Copy

Harry Mills
Director at Oku Markets
UK inflation is hotting up. Fresh data showed that the UK inflation rate rose to 3.8% y/y in July, the highest rate of price rises since January 2024 and in line with Bank of England forecasts. The Bank of England expects a peak of 4% in September. Core inflation, with more volatile food and energy components stripped out, also rose by 3.8% y/y, and services inflation was a concerning 5%. Transport, fuelled by a 30% rise in airfares (due to summer holidays), was the biggest upward driver, whilst restaurants and hotels also jumped; however, housing and household services eased, but remained above 6%. The Bank of England cut interest rates by a quarter-point in a historic split decision earlier this month: today's data will reaffirm the decision of the more hawkish members, and may help dissuade further cuts. Markets had reduced bets on further cuts from the Bank of England this year to zero, in a hawkish repricing – underlined by today's hot inflation print.
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Keith Budden
Managing Director at Ensurety
The doom sprial of inflation continues, and this Government, or to be more precise this Chancellor, seems to be out of ideas in how to bring it back down.

What this means for my business and I'm sure many others is that a) the cost of living crisis continues and b) we are continually battling between shrinking margins or increasing our prices at a time when demand in the B2B space is best described as being stagnant. All in all not a great position as we start Q4 - let's just hope the world stage settles down and the economy can start to grow in a meaningful way.