While a post-pandemic burst of inflation has abated across much of the developed world, the UK is still stuck with the highest price growth among big Western economies.

UK inflation rose unexpectedly in July, led by energy and airfares, but core pressures remain nuanced. Markets signal BoE may pause in September.

British inflation hit its highest in 18 months in July when it increased to 3.8% from 3.6%, official data showed on Wednesday, once again leaving the country with the fastest rate of price increases among the world's largest rich economies.

The Bank of England currently expects inflation to hit 4% in September, the all-important month for pensioners. Wage growth is currently slightly higher than this at 4.6% (including bonuses), although it could shift slightly in next month's report.

The U.K.’s annual inflation rate was higher than expected at 3.8% in July, according to data released by the Office for National Statistics (ONS) on Wednesday. Most economists had anticipated inflation would reach 3.

Higher food and airfare prices pushed U.K. inflation above expectations in July. The development has tempered market expectations that the Bank of England will cut interest rates again this year.

By contrast, Eurozone inflation held steady in the same month at 2 per cent, according to separate data from Eurostat, the EU’s statistics agency, with a reading of just 0.9 per cent in France. The 1.8 percentage point gap between UK and euro area inflation is the widest since September 2023.