(Bloomberg) -- UK inflation climbed for a second month in July, adding pressure on the Bank of England to reconsider its pace of interest-rate cuts.

Consumer prices rose 3.8% from a year earlier, up from 3.6% in June and the fastest pace since January 2024, the Office for National Statistics said Wednesday. The pickup, forecast by the Bank of England, was driven by air fares, hotels and motor fuel.

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Services inflation, a closely watched gauge of underlying prices pressures, climbed to 5%, above the 4.9% forecast by the BOE. The pound erased a drop after the report to trade little changed at at $1.3492.

The figures add to evidence that that firms are responding to Chancellor of the Exchequer Rachel Reeves’ bumper tax and minimum-wage increases in April by passing on the billions of pounds in extra costs to consumers. Food inflation accelerated to 4.9%, up from 4.5% the month before and the highest since February 2024.

Traders have curbed their bets on future rate cuts since a narrower-than-forecast decision to cut rates on 4% on Aug. 7 saw some policymakers warn of the risk of second-round effects on wages and prices as consumers try to recover lost spending power.

Subsequent figures showing the economy and labor market holding up better than feared have added to the case for caution. On Tuesday, traders put the chance of November rate cut at one in three, with only a 50% probability by the end of the year.

The figures are also a blow for Reeves and Prime Minister Keir Starmer, who came to power promising to improve living standards for “working people.” Instead a recovery in real incomes is fizzling out as resurgent inflation collides with a cooling labor market, with their tax-raising budget in October blamed by critics for causing both.

--With assistance from Harumi Ichikura and Simon Lee.

(Adds food prices in fourth graph. A previous version was corrected to remove prewritten material from the end of the story.)

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