Government figures reveal the rising cost of food, airfares and fuel has pushed inflation higher than expected, ending any hopes of any further cuts in the base rate.

The Consumer Prices Index is now at 3.8% and service inflation is as high as 5%. That’s up from 3.6% the previous month and almost double the Bank of England’s target inflation rate of 2%. And it is expected to continue rising, with the Bank forecasting it to peak at 4% in September.

Flying away

The ONS’s chief economist, Grant Fitzner, says: “The main driver was a hefty increase in air fares (+30.2%), the largest July rise since collection of air fares changed from quarterly to monthly in 2001.

“This increase was likely due to the timing of this year’s school holidays.

“The price of petrol and diesel also increased this month, compared with a drop this time last year.

“Food price inflation continues to climb – with items such as coffee, fresh orange juice, meat and chocolate seeing the biggest rises.”

It means that, for the time being, mortgage costs are unlikely to come down any further and November’s expected cut in the base rate is now more likely to happen in 2026.

This latest jump in inflation will slam the door on the prospect of any meaningful reduction in mortgage interest rates.”

Peter Stimson, Director of Mortgages at the lender MPowered, says: “This latest jump in inflation will slam the door on the prospect of any meaningful reduction in mortgage interest rates in the coming weeks.

Rose-tinted

“Inflation is back with a vengeance and the Bank of England’s prediction that CPI will hit 4% in September, which caused gasps when it was made less than a fortnight ago, now looks almost rose-tinted.

“At 3.8% a year, prices are now rising at nearly double the Bank’s 2% target, and this will force the Bank to rein in consumer spending by delaying any further reductions to the base rate. Hopes of another base rate cut this year now look decidedly optimistic.

“The mortgage swaps market, which tracks interest rate expectations and is used by mortgage lenders to determine the fixed interest rates they offer to borrowers, had been suggesting that the next base rate cut might come in November.

“But today’s painful jump in inflation means that base rate cut may now be pushed back into 2026, and as a result, we are unlikely to see any further rate cuts from lenders in the immediate term.

“Competition between lenders is intense, but mortgage rates may well have fallen as far as they can for now. They may even creep up over the next month or so as lenders recalibrate in response to rising swap rates.”

Unfortunately, any increase seen within the rate of inflation does bring very justified concerns to consumers.”

Nathan Emerson, CEO of Propertymark, says: “Unfortunately, any increase seen within the rate of inflation does bring very justified concerns to consumers, many of whom are still struggling with the cost of living, which has been steadily rising over the past few years.

“Although there is more work to be done to help ensure inflation tracks back down towards the Bank of England’s target of two per cent, we have seen three base rate cuts across 2025, which have provided instant benefit to those on tracker mortgages and additional new competitive rates from many lenders.

Tight focus

“It remains important that the UK Government and devolved administrations keep a tight focus on the fact that housing plays a central role in providing consistency within the UK economy and that delivering a range of sustainable housing options brings both long-term stability and an opportunity for regional growth.”

Another rise in monthly inflation takes us one step closer to 4%.”

John Phillips, CEO of Just Mortgages and Spicerhaart, says: “Another rise in monthly inflation takes us one step closer to 4% – double the bank’s elusive target and where their long-term forecasts suggest inflation will peak.

“While you can say that inflation is currently playing out according to the bank’s plan, it still remains ultra sticky, highly unpredictable and totally susceptible to both internal and external economic shocks. It likely explains why the recent interest rate cut was such a knife-edge decision, and yet so necessary to give some form of support to a struggling economy.

5-4 verdict

“While that 5-4 verdict likely irked many investors and economists, we remain hopeful for at least one more base rate cut this year – although this is totally reliant on how inflation plays out and how much fight the UK economy has left in it.

“Positive movement all helps towards improving conditions in the mortgage market and enables it to be that key driver in economic growth.

“While inflation continues to add pressure to households – particularly when doing their weekly shop – we continue to post positive numbers when it comes to buyer registrations, valuation requests or mortgage appointments.

“Lender innovation and affordability tweaks have certainly helped catch the interest of potential buyers and sellers. So has the proactive approach of brokers to engage with clients early, explore all options and support borrowers in the way that only they can.”