New figures from the Office for National Statistics show UK inflation rose to 3.8% in July, the highest since January 2024 – dampening hopes of an interest rate cut in the near future.

The higher-than-expected figure is the largest increase in inflation since January 2024, exceeding the 3.7% forecast from economists and up from the 3.6% recorded in June.

James Bentley, director at Financial Markets Online, said: “Inflation is running hot and this is taking a blowtorch to the value of millions of Britons’ savings.

“The annual CPI rate of 3.8% isn’t just an abstract economic number. It means the cost of living is rising three times faster than the interest paid by most bank savings accounts, and this is steadily eroding the value of people’s nest eggs and rainy-day funds.”

The acceleration in inflation accentuates the affordability squeeze challenge facing housing, according to Thomas Lambert, financial planner at Quilter.

In addition, housing supply remains thin, which he said was keeping “choice limited for buyers and prices sticky”.

Meanwhile, policy noise is adding further uncertainty. Lambert said: “Reports this week suggest the Treasury is considering taxing gains on primary residences above a high threshold or introducing new levies on expensive homes.

“If these rumours do materialise at the Autumn Budget, transactions could seize up through the winter as sellers consider sitting on their hands hoping that another government might reverse the changes.”

Earlier this month, the Bank of England (BoE) reduced the base rate by 0.25 percentage points to 4%, but industry figures said more cuts were needed for a sustained revival in the market. The new inflation figures make near-term base rate cuts less likely.

Nathan Emerson, chief executive of Propertymark, said: “It remains important that the UK government and devolved administrations keep a tight focus on the fact that housing plays a central role in providing consistency within the UK economy and that delivering a range of sustainable housing options brings both long-term stability and an opportunity for regional growth.”

Daniel Austin, chief executive and co-founder at ASK Partners, said: “Appetite remains strong in resilient sectors like co-living, build to rent and storage, where supply constraints and healthy demand keep capital active. But a stable, downward inflation trajectory will be key.”

He added: “There may be opportunity present for the most nimble of investors to capitalise on a potentially cooler market.”

Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, said: “Another consecutive and frustrating rise in inflation was expected; nonetheless, this news is disappointing.

“While borrowing costs have continued to ease, there remains this delicate balance between controlling inflation and ensuring economic growth. It’s a complex picture.”

He added: “As for future rate cuts, it’s a wait-and-see situation, albeit the view is we are near or at the top in terms of inflation.”