I am trying to book a 2/2.5 hour flight across Europe 3 months in advance, and the price of a return ticket has just increased from £125 to £190 at some point over the last week. This was an increase in price for all flights on this route with Ryanair across July/August. Do flight prices go down after a sharp increase, or will they stay this high?
Flight prices are based on supply and demand, which the airlines implement through (rather convoluted and complicated) revenue optimization systems.
In ticket prices go up early, that means, they are selling faster than the airline had expected. There is a high likelihood that this trend will continue and so chances are: prices will stay or go up further. July/August are high demand times anyway.
It's not impossible for prices to go down again: if demand slows, they may lower them again. However, it's unlikely.
Also, it doesn't harm keeping an eye on it: the revenue optimization systems are so complicated that they misfire occasionally. For example, I've got occasionally bought business class tickets that were cheaper than economy.