Inflation rose above expectations in July to its highest level in 40 years, adding to the pressure on consumers and pressure on the government and the Bank of England to act.

Data released by the Office for National Statistics on Wednesday showed that the consumer price index (CPI) rose 10.1% year-on-year in July, up from 9.4% in June. Economists had expected July inflation to be 9.8%.

These figures have exacerbated the UK's cost of living crisis, with wages further lagging behind rising prices for various goods and services. Bank of England Governor Andrew Bailey has signaled he is ready to raise interest rates further, while a contender seeking to replace Boris Johnson as prime minister has pledged further aid for households struggling to pay their bills.

Economists are increasingly pessimistic about the UK, which is now considered far more likely to slip into recession than no recession due to rising cost pressures. The Bank of England expects a recession to start in the fourth quarter and last until early 2024.

The bank expects inflation to exceed 13% later this year when regulators allow energy bills to rise again. It would be the worst data since September 1980, when Margaret Thatcher's government was struggling to rein in a wage-price spiral.

Britain's inflation-adjusted real wages fell 3% in the three months to June, the biggest drop since records began in 2001, official data showed a day earlier. Employment rose by 160,000 in the second quarter, a 46% decrease from the three months through May, and job openings fell for the first time since August 2020.