Rachel Reeves came under fire on Wednesday after her tax raid on jobs helped push inflation to an 18-month high.
The Tories warned ‘Britain can’t afford Labour’ after figures showed consumer prices rose by 3.8 per cent last month compared with a year earlier.
That was up from 3.6 per cent in June and higher than the predicted 3.7 per cent figure.
Air fares, petrol costs and food prices were among the factors driving inflation higher.
Hotel prices also climbed – with some experts citing an ‘Oasis bump’ as fans snapped up rooms near venues for the band’s sold-out comeback tour.
The Resolution Foundation think-tank said the UK was now ‘increasingly looking like an inflation outlier’, with prices rising at the fastest pace in the G7 group of advanced economies.
Worse is to come as the Bank of England predicts inflation will climb to 4 per cent later this year – double its 2 per cent target.
And the worsening picture has further diminished hopes of another interest rate cut by the Bank before the end of 2025, in a major blow to borrowers.
It comes as households prepare for a further hit when regulator Ofgem announces its latest energy price cap next week –which is predicted to result in a rise in bills.
Much of the surge in inflation has been caused by the Chancellor’s £25 billion raid on employer national insurance as well as a big increase in the minimum wage, which has made it more expensive to hire staff.
That has resulted in many firms passing on the costs in the form of higher prices – or in other cases cutting back the workforce.
The figures will further fuel accusations that Ms Reeves’ tax raid on employers has backfired.
Yet with growth slowing and debt surging the Chancellor is likely to announce even more painful tax rises in her autumn Budget as she seeks to fill a financial black hole estimated at up to £50 billion.
Shadow chancellor Mel Stride said the rise in inflation was ‘deeply worrying for families’.
He added: ‘Labour’s choices to tax jobs and ramp up borrowing are pushing up costs and stoking inflation – making everyday essentials more expensive.
‘And with leading economists warning that the Chancellor has blown a colossal black hole in the public finances, families and businesses are bracing for yet more pain come in the autumn Budget.
‘Families are paying the price for Rachel Reeves’ economic mismanagement. Britain can’t afford Labour.’
The Office for National Statistics said a sharp increase in air fares – blamed on the timing of school holidays – was to blame for much of the rise in inflation.
Fares rose by a record 30 per cent between June and July and by 15 per cent compared with the same month last year.
Petrol and diesel prices also went up, while food price inflation climbed for the fourth month in a row, to 4.9 per cent – the highest recorded since February last year.
That means households have been seeing their supermarket shopping bills go up more quickly every month since the spring.
Among the products seeing striking double-digit increases were staples such as milk, up 11 per cent, butter (18 per cent), and chocolate (17 per cent).
The Food and Drink Federation (FDF), representing manufacturers, said the industry was being ‘squeezed on all sides’ by high energy and ingredient costs as well as Labour’s new packaging tax and NI hike.
Jim Bligh, director of corporate affairs and packaging at the FDF, said: ‘We expect that high food and drink inflation will persist through the year, so any fresh costs for businesses in the autumn Budget will inevitably put yet more pressure on shoppers’ pockets.’
Steve Clayton, head of equity funds at investment platform Hargreaves Lansdown, said: ‘Rachel Reeves landed a major bill onto employers when she hiked national insurance costs earlier this year and they are now trying to pass the buck on to consumers through price increases.’
Stuart Morrison, research manager at the British Chambers of Commerce, said: ‘Businesses tell us national insurance, wage growth and tariffs are all bubbling away in a cauldron of price pressures.’
The Chancellor said: ‘We’re a long way from the double-digit inflation we saw under the previous government, but there’s more to do to ease the cost of living.’