LONDON, Aug. 21 (Xinhua) -- Britain's annual consumer price inflation rose to 3.8 percent in July, the highest since January 2024, adding pressure to businesses and consumers while limiting the space for interest cuts in the near term.

The rate, up from 3.6 percent in June, was driven mainly by higher air fares, food and non-alcoholic beverages, and increased costs for hotels and restaurants, according to data released by the Office for National Statistics on Thursday.

"The inflation warning lights continue to flash, with July's rate being slightly higher than most analysts had forecast," said Stuart Morrison, research manager at the British Chambers of Commerce. He added that there is little sign inflation will approach the Bank of England (BoE)'s 2 percent target soon.

A Chambers survey showed that inflation remains a major concern for more than half of Britain's small and medium-sized firms. Morrison noted that persistent inflation may limit the Bank's ability to cut interest rates further.

Tina McKenzie, policy chair of the Federation of Small Businesses, said "the jump in inflation in July will put a dampener on small firms' optimism." An Autumn Budget focused on increasing small business productivity is needed to keep small businesses' heads above water, she said.

The market is keeping a close eye on the coming Autumn Budget, expecting moves to support enterprises by easing cost burdens.

"Retailers have been doing everything they can to prevent price rises, but the swathe of costs they now face has left them no room to manoeuvre," said Kris Hamer, director of insight at the British Retail Consortium, calling on the Chancellor to avoid burdening the industry with even more taxes this autumn.

On the consumption side, high inflation is continuously raising the living costs of British residents and exhausting consumer confidence.

"Households are once again seeing the cost of their weekly shop climb, with food inflation now up by 1.9 percentage points in just four months. This surge has been a key driver behind headline inflation, alongside a rise in transport costs, piling fresh pressure on families already being forced to cut back," said Hamer.

Highlighting the large upward contributions from hospitality and food sectors to the inflation growth, Julian Jessop, economics fellow at the Institute of Economic Affairs, noted these two sectors have been hit particularly hard by rising labor costs in the wake of last October's Budget.

The BoE has been clear that government policies have driven up the costs of employment, fuelling price rises at the till, while poor harvests and global instability have also added further cost pressures, Hamer added.

The BoE announced a cut to its benchmark interest rate from 4.25 percent to 4 percent in early August, the lowest level in over two years, amid a struggle to boost the weakening British economy. Experts projected that the bank is not likely to change its interest rate in September.

"Today's inflation data will reinforce the BoE's Monetary Policy Committee's cautious approach to cutting interest rates going forward," said Martin Sartorius, principal economist at the Confederation of British Industry.

While inflation is projected to ease next year, the risk of second-round effects means that the committee will not race to loosen policy in the near term, Sartorius added.

Citing the 5 percent rise in services inflation in July, Marcel Lukas, senior lecturer in banking and finance at the University of St Andrews, said the stickiness in services keeps the BoE cautious because services are tied to domestic costs and wages.

Consumer price inflation is expected to reach 4 percent in September, with the pressure coming from the parts of the basket most felt by consumers, said Anna Leach, chief economist at the Institute of Directors, adding that while this spike is expected to be temporary, inflation is not expected to be back within the target range until the second half of 2026.

"September's rate decision is expected to be a hold," said Leach, "but don't be surprised if sticky inflation puts paid to further rate cuts this year." ■