Britain's inflation accelerates and hits an 18-month high, central bank may reconsider interest rate cuts

UK inflation rate in July climbed for the second consecutive month, adding pressure on the Bank of England to reconsider the pace of interest rate cuts. The UK Office for National Statistics announced on Wednesday that the Consumer Price Index rose by 3.8% year-on-year in July, higher than the 3.6% increase in June, marking the fastest increase since January 2024. The increase in CPI was mainly driven by rising prices of airfares, hotels, and automotive fuels. Service sector inflation is a key indicator of potential price pressures, and the index reached 5%, higher than the Bank of England's predicted 4.9%. The pound erased its losses after the data release, holding steady at around $1.3492. These data further demonstrate that businesses are reacting to the measures taken by Chancellor of the Exchequer Rachel Reeves in April to increase taxes and minimum wage, passing on billions of pounds in additional costs to consumers.