The July 2025 inflation report shows a modest but notable upward movement in consumer prices. CPI rose to 3.8 percent annually, compared with 3.6 percent in June and 0.1 percent above the consensus forecast, driven mainly by transport costs, especially air fares, which added upward pressure. However, this was partly offset by housing and household services, particularly owner occupiers' housing costs, which kept CPIH increases relatively contained.

On a monthly basis, CPI inched up by 0.1 percent, contrasting with a fall recorded a year earlier, signalling firmer price momentum.

Core inflation remained sticky, with CPI at 3.8 percent and CPIH at 4.2 percent on an annual basis, reflecting persistent demand-side pressures beyond volatile energy and food. Goods inflation picked up slightly, while services inflation remained stronger, with CPI services rising to 5.0 percent and CPIH services holding steady at 5.2 percent.

These figures indicate that while inflationary pressures are not accelerating sharply, underlying price stickiness in services may complicate the path toward stabilisation. Indeed, July's data suggest that the balance between transport-driven price increases and housing-related relief remains fragile, pointing to the need for continued vigilance in monetary and fiscal policy responses. This latest update takes the RPI to 23 and the RPI-P to 19, meaning that economic activities are now above the expectations of the UK economy.

UK annual inflation seen even higher at 3.7 percent in July after an upside surprise at 3.6 percent in June. Month on month, the consensus looks for a flat reading after increasing 0.3 percent in June. Food and service prices are seen boosting the CPI despite lower energy bills.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.