After annualised UK inflation rose by higher than expected in July, wealth managers comment.

Core UK inflation came in more than expected at 3.8 per cent in the 12 months to July, from the 3.6 per cent reported in June. Annualised inflation was forecast to come in at 3.7 per cent, according to figures from the Office of National Statistics.

UK Chancellor of the Exchequer Rachel Reeves said there was more to do to ease the cost of living while UK conservative party Mel Stride shadow chancellor said the data was deeply worrying for families.

Such data means the Bank of England (pictured) may be less likely to trim rates than previously anticipated. The inflation data coincides with worries about the state of the UK's public finances and the prospect that Reeves may have to further hike taxes in her autumn Budget. A concern is that if inflation remains "sticky", it will make it harder for the government to contain public sector pay pressures.

Here are some reactions from wealth managers to the rise.

Nicholas Hyett, investment manager, Wealth Club
"Rising air fares and higher restaurant and hotels costs are making 2025 an eye-wateringly expensive summer. Air fares in particular rose 30.2 per cent month-on-month, the biggest single month rise since records began. True some of that is down to timing, but airlines have been talking about a capacity crunch for a while now, and higher costs are the inevitable outcome. 

“More concerning from a social and economic perspective is the continued rise in food prices, up 4.5 per cent year-on-year and the fourth consecutive increase in the annual rate. Coming on top of the run-away food price inflation seen in 2022 and 2023 that will be very painful for consumers. Rising food and beverage prices together with rising housing costs will be decimating disposable incomes. 

“All this leaves the policymakers with a bit of a conundrum. The most recent interest rate cut was made despite the expectation that inflation would hit 4 per cent in September – which now looks increasingly likely. But with the labour market slowing, the risk of stagflation is very real. If the UK is heading towards the economic "worst of all worlds," it’s not clear what the central bank or the government should do about it.”

Marcus Jennings, fixed income strategist, global unconstrained fixed income, Schroders
"With core inflation heading higher, beating market expectations, this brings further into question the Bank of England’s ability to ease interest rates in the near term. This was brought into focus by the closely-watched services inflation measure rising more than expected to 5 per cent year-on-year. That said, volatile airfares helped drive inflation higher over July, which could reverse in coming months. Inflation in the near term was always going to put greater emphasis on the labour market getting weaker to justify interest rate cuts. Today’s upside surprise only reiterates this further."

George Holme, managing director, Aurora Capital
"This above-expected increase shows that the inflation problem isn't going away any time soon. It means that costs remain stubbornly high for small businesses, and the chance of further relief on borrowing is fading. The prospect of interest rates being held for longer is bad news for investment and for firms looking to take on new finance. The reality is that small and medium sized enterprises (SMEs) have endured an extended period of elevated inflation, and even small increases have an impact. Energy, raw materials, and logistics are all more expensive to absorb, leaving firms with little choice but to cut margins or pass costs on.

With forecasts pointing to inflation edging to 4 per cent in September, the road back to stability is looking longer than hoped. Small businesses urgently need greater clarity on rates and costs so they can plan, invest, and grow with confidence."

Scott Gardner, investment strategist at JP Morgan-owned digital wealth manager, Nutmeg
“The UK is battling a prolonged period of strong inflation with persistent price rises forcing the headline rate to reach its highest level since the start of 2024. Headline inflation came in a smidge higher during July, with core inflation remaining sticky and closely-watched services inflation edging upwards. What lurks ahead could make for even tougher reading with forecasts suggesting that inflation will continue to rise in the coming months and peak at 4 per cent, meaning that businesses and consumers will pay more. UK consumers are increasingly being squeezed by rising food prices which is putting pressure on household budgets and leading many to cut back. That said, cheaper energy and lower petrol prices are providing some relief. Services inflation is also particularly challenging and shows little sign of coming down soon. Service-focused businesses are increasing their prices to cover the costs of rising wages and the hike to National Insurance contributions for employers. 

“While most of the focus right now is on the weakening jobs market, this bout of sticky inflation is making a fourth rate cut this year harder for the Bank of England to justify. The Bank is clearly having to tread carefully, and will perhaps have to be even more cautious in the future, as inflation remains persistent. Inflation edging closer to 4 per cent doesn’t make future decisions any easier.”

Michael Browne, investment strategist at Franklin Templeton Institute
“The importance of today’s CPI report was highlighted in the last MPC meeting, where the committee was split, the hawks looking at near-term concerns on food, energy and services prices, the majority acknowledging the weak economy, slack labour markets and growing output gap. Today’s numbers help the hawks, although the worst of their inflationary fears did not evolve. Services rose slightly but the root cause was holidays expenditure: airline prices jumping as school holidays started and hotels and restaurants, no doubt reflecting the same. The comment in the MPC report that even the Hawks think this is short term, has not received enough scrutiny.

“But a “Bad” inflation figure this morning does little to help long term rates, even though a cut by the MPC in November is very likely. These have been rising due to fears around the rising budget deficit, caused by growing government spending and slower growth, the latter a by-product of the MPC rate hikes two years ago. Finding new sources of taxation has been this summer’s holiday project for the Treasury. Whatever the MPC or the economy does will count for little to the bond market vigilantes until the books are balanced. If they are, in October, it would set the UK apart from other G7 economies and make the UK an attractive opportunity. If not, it’s more of the same.”

Tim Graf, head of macro strategy, EMEA, State Street Markets
“Inflation stickiness continues for another month, with early clues from our survey of online prices this month suggesting that August may well see a continuation of this trend. With the Bank of England now divided on the need to ease further, their maintenance of a quarterly cadence for cuts faces significant challenges. It could be next year before we see another move.”