London Daily

Focus on the big picture.
Saturday, Jul 12, 2025

After UK inflation again outpaces forecasts, a 13% peak looks optimistic

After UK inflation again outpaces forecasts, a 13% peak looks optimistic

Analysis: Rate has driven through 10% mark sooner than Bank of England and financial markets expected

The annual inflation rate has burst through the 10% barrier sooner than the financial markets and the Bank of England expected, but the sharp jump in the cost of living last month is not really that much of a shock.

Periods of double-digit inflation are pretty rare in the UK. In the past 70 years, inflation has been as high as it is currently only three times: during the Korean war in the early 1950s, and after the two oil shocks of the mid- and late 1970s.


Not for 40 years – since the period immediately before the Falklands war – has inflation climbed above 10%, but there has been upward pressure on the cost of living since the global economy started to emerge from the pandemic-enforced lockdowns during 2021.

Consistently over the past year, the figure has come in higher than forecast, but it will not merely be the leap in the headline number for the consumer prices index (CPI) – up from 9.4% in June – that will be a cause for concern.

For a start, the Office for National Statistics (ONS) said price increases were evident pretty much across the board. The ONS splits the CPI into 12 categories, and in nine of them inflation picked up last month. Food prices rose particularly strongly but there were also increases in clothing and footwear, restaurants and hotels, and recreation and culture.

What’s more, there is clearly further bad news to come. The price of goods leaving factory gates – an indication of inflation in the pipeline – rose by more than 17% in the year to July, the highest rate in 45 years.

There has been some better news. Oil prices are well below their peak and that is feeding in – albeit slowly – to the prices paid by motorists for petrol and diesel. The war in Ukraine has also prompted many countries to plant more crops to compensate for the lost supply, and while the ONS says the increased production has yet to be reflected in UK shop prices, it thinks it will have an effect over the coming months.

Even so, the annual inflation rate has clearly not yet topped out, and if anything the Bank of England’s forecast of a peak of 13.2% in October may prove optimistic.

Threadneedle Street digs beneath the headline CPI figure to look at measures of core inflation. Here, too, there was bad news. Inflation excluding food, fuel, alcohol and tobacco, stood at 6.2% in July, up from 5.8% in June. The inflation rate for services, which provides a clue to price pressures generated domestically as opposed to global forces, was 5.7% in July, compared with 5.2% in June.

The strength of headline and underlying inflation makes it more likely that the Bank’s monetary policy committee will follow its 0.5 percentage-point increase in interest rates this month with a similar-sized move when it meets again in September.


At the same time, the risks of a hard landing for the economy have increased because the ever-widening gap between prices and wages is leading to a sharp fall in consumer spending power.

The ONS reported on Tuesday that regular real wages – excluding bonuses – were falling at a record rate of 3% – but that was based on a different measure of the cost of living to the one used by the government to assess whether its 2% inflation target is being hit.

Using the government’s preferred measure, real earnings are falling by more than 5% – unprecedented in modern times. Pressure on the next prime minister to alleviate a deepening cost of living crisis just ratcheted up a notch.

Newsletter

Related Articles

0:00
0:00
Close
A 92-year-old woman, who felt she doesn't belong in a nursing home, escaped the death-camp by climbing a gate nearly 8 ft tall
French Journalist Acquitted in Controversial Case Involving Brigitte Macron
Elon Musk’s xAI Targets $200 Billion Valuation in New Fundraising Round
Kraft Heinz Considers Splitting Off Grocery Division Amid Strategic Review
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
EU Proposes New Tax on Large Companies to Boost Budget
Trump Imposes 35% Tariffs on Canadian Imports Amid Trade Tensions
Junior Doctors in the UK Prepare for Five-Day Strike Over Pay Disputes
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
×