Energy price cap hike set to push UK inflation above 2.9%

Morning Wire Published Aug 16, 2026 Reviewed Aug 18, 2026 ✓ Reviewed by citations.press editors

UK consumers will see their average annual gas and electricity bill rise by £221, a 13 per cent jump, after Ofgem lifted the energy price cap for July.

221 £ · average annual gas and electricity bill13 % · increase Ofgem, regulator

Economists forecast a climb to 2.9 per cent from June’s 2.6 per cent, the lowest level in 15 months.

2.9 % · CPI2.6 % · CPI15 months · lowest level economists, analysts

Ellie Henderson warned that the cap increase alone could add half a percentage point to July’s CPI.

0.5 % · increase to CPI Ellie Henderson, economist at Investec

Economists expect the Bank of England to consider at least one 25‑basis‑point rate increase before year‑end to curb overheating.

25 basis points · rate increase economists, analysts

A higher energy price cap could lift July inflation to 2.9%, threatening the Bank of England’s target.

UK consumers will see their average annual gas and electricity bill rise by £221, a 13 per cent jump, after Ofgem lifted the energy price cap for July. The Office for National Statistics is slated to release the Consumer Prices Index (CPI) on Wednesday, and economists forecast a climb to 2.9 per cent from June’s 2.6 per cent, the lowest level in 15 months.

The extra cost is not just a line‑item for households; it feeds directly into the headline inflation figure that the Bank of England uses to set interest rates. Ellie Henderson, an economist at Investec, warned that the cap increase alone could add half a percentage point to July’s CPI.

While lower motor fuel inflation will partially offset the energy shock, analysts say food prices could soon re‑ignite pressure. Heat‑related crop shortages have already nudged wholesale food costs higher, and an emerging El Niño pattern may exacerbate the trend.

Economists expect the Bank of England to consider at least one 25‑basis‑point rate increase before year‑end to curb overheating. Earlier this year, Rachel Reeves introduced the Great British Summer Savings Scheme, cutting VAT on family attractions and children’s meals until September. While the measure offers modest relief, it is unlikely to offset the broader inflationary drift.

In the longer view, the combination of higher energy bills, lingering food price risks and geopolitical uncertainty, highlighted in a recent analysis of UK growth prospects that warned of war‑related price shocks, suggests that inflation could remain above the Bank’s 2 per cent goal for several quarters.

Households will feel the squeeze, and businesses will watch closely as monetary policy adjusts to keep the economy on a stable footing.

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