Inflation rises to 3.8%

Inflation jumped slightly to 3.8% in July.

That’s up from 3.6% in June and the highest level since January 2024.

It's also a bigger increase than many economists had expected and was partly down to increases in air fares.

Food prices have also continued to go up, according to the Office for National Statistics, especially items like coffee, chocolate, meat and fresh orange juice.

In fact, food inflation has risen for four consecutive months and now stands at 4.9% - up from 4.5% in June.

Responding to the figures, chancellor Rachel Reeves said: "We’re a long way from the double-digit inflation we saw under the previous government, but there’s more to do to ease the cost of living.

"That’s why we’ve raised the minimum wage, extended the £3 bus fare cap, expanded free school meals to over half a million more children, and are rolling out free breakfast clubs for every child in the country."

What is inflation and why does it matter?

Imagine that a selection of everyday items like milk and bread were placed in a shopping basket every month, along with larger purchases like cars and televisions.

The headline inflation figure, which is tracked by the Office for National Statistics, shows how much the price of what’s in that imaginary basket has gone up overall.

So if inflation is high, that means your money won’t stretch as far, which makes it harder to budget and save.

But remember that if inflation falls, that doesn’t mean prices are coming down too.

It just means they’re not going up as quickly.

How is inflation linked to interest rates?

The government has set the Bank of England (BoE) a target of 2% inflation.

To help keep inflation close to this level, the BoE can either raise or cut interest rates.

And this, in turn, affects the interest rates charged by banks and lenders.

So a rate increase makes borrowing more expensive and people will have less money to spend elsewhere.

This then means a fall in demand, which slows price increases and helps inflation go down.

If inflation is too low, the BoE may cut interest rates to make borrowing cheaper, encourage spending and stimulate economic growth.

Earlier this month, the BoE cut interest rates by a quarter of a percentage point to 4%.

That's the fifth rate reduction since August last year and the lowest they've been for over two years.

How can you manage rising costs?

If you’re struggling to keep up with the increasing cost of living, there are ways to ease the pressure.

Check your benefits

You might be eligible for financial support from the government, so use our benefits calculator to find out what help you could get.

Review your spending

Take charge of your spending and see where you can make savings with our handy budget planner.

Tackle problem debts

If cost-of-living pressures have led to you falling into debt, then get in touch for confidential, practical and impartial debt advice.