Annual inflation in the U.K. increased to 2.5% in July from 2.4% in June but is expected to fall over the next few months, making the chances of an interest rate increase by the Bank of England before May 2019 unlikely.
Transport prices increased by 5.7% in July after rising by 5.5% in June. Food and nonalcoholic beverages prices increased by 2.3% after rising by 2.0% in the previous month, while clothing and footwear prices decreased by 0.4% after rising by 0.3% in the prior month.
"Barring any further gyrations in oil prices, we think July's figure represents a peak, and we expect CPI to begin trending downwards over the next few months gradually," said James Smith, developed markets economist at ING Research.
Annual core inflation, which excludes energy, food and alcoholic beverages, remained unchanged at 1.9%, the Office for National Statistics said.
"The fading impact of sterling's post-Brexit fall is likely to keep a lid on core inflation over the coming months, adding another reason for the BoE to remain on hold this year as Brexit risks mount," Smith said.
Meanwhile, the annual rate of inflation for goods leaving the factory gate slowed to 3.1% in July from 3.3% in June, with petroleum products providing the largest upward contribution of 1.10 percentage points. Output prices remained flat on a month-over-month basis.
The annual rate of inflation for materials and fuels purchased by manufacturers increased to 10.9% from 10.3% in the previous month. Input prices increased by 0.5% in July from the previous month.