John Healey handed inflation nightmare as prices set to soar - highest rate i...
The UK inflation rate has risen to 2.9% in the 12 months to July, the Office for National Statistics (ONS) has announced. The increase, widely expected by experts, is up from a 15-month low of 2.6% in June and the highest rate since March.
It comes on the back of a 13% hike in Ofgem’s energy price cap last month, which saw the average gas and electricity bill increase by £221 to £1,862 a year. Speaking in advance of the figures being confirmed, Investec economist Ellie Henderson said the energy price cap rise alone would contribute an increase of around 0.5%. She said: “It was already clear at the publication of the June print that any easing in inflationary pressures as per the headline measure wouldn’t last for long, with the July increase to the Ofgem energy price cap likely to erase any progress towards the Bank of England’s 2% target.”
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The Consumer Prices Index (CPI) rose by 2.9% in the 12 months to July 2026, up from 2.6% in the 12 months to June 2026.
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Ofgem will announce the next price cap level for October to December on August 26.
The inflation rate puts the UK broadly in line with other G7 nations, with France at 2.4% and Germany at 2.8%.
ONS Deputy Director for Prices Mike Hardie said: “Inflation rose in July, driven by a sharp increase in gas prices following this month’s change to the energy price cap. This was the largest rise in gas prices for almost four years.”
“Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting.”
“The prices of raw materials and goods leaving factories slowed again, driven by a drop in the prices of crude oil and refined petroleum respectively.”
There are concerns that inflation is set to keep rising as the Iran war could send energy costs even higher over the winter months, and as the hot weather damages crops and puts food costs under pressure.
Victoria Scholar, head of investment at Interactive Investor, is forecasting inflation pain to come – which could force the Bank of England to raise interest rates from 3.75% to 4% by the end of the year.
She said: “Inflation is expected to continue to rise, peaking above 3% later this year, as the UK economy continues to grapple with the backdrop of elevated energy prices and the effective gridlock in the Strait of Hormuz.
“The Bank of England is likely to carry out roughly one 25 basis point hike by the end of the year as it looks to temper the risk of overheating and help push the inflation rate back in the direction of the central bank’s 2% target.”
Scott Gardner, investment strategist at J.P. Morgan Personal Investing, warned that the inflationary impact of the war is now beginning to spread.
He said: "Until now, the spike in global energy prices had been felt the most among motorists when filling up their vehicles at the petrol pump. July data shows that the inflationary impact of the US-Iran war is spreading as rising energy costs feed through into higher household bills.
"As the situation in the Middle East remains uncertain, the continuation of elevated energy costs remains the largest challenge for consumers and businesses. Petrol prices have already risen 6.3% in August compared to the previous month and will show up in next month’s reading.
"Businesses are also facing higher input prices which are being passed on to buyers and could rise heading into the colder months later this year. Falls in services inflation and shop prices are helping to offset some of these pressures for now but the jury is out on whether this will last.
“While one data reading doesn’t always tell the whole story, this rebound in UK inflation is a warning shot for what could come next."
There are also concerns over food inflation, with producers warning earlier this week that soaring temperatures and droughts across the UK and Europe are set to drive prices higher.
The Food and Drink Federation said “fruit, vegetable and grain supply” are being hit by recent heatwaves, with crop shortages set to feed in to supermarket prices.
Economists from the trade group suggested that this will put upward pressure on food inflation going into 2027.
The ONS’ data for Retail Prices Index inflation in July will also be watched closely, as the July rate is used to calculate next year’s train fare increase.
Last November, the then-chancellor Rachel Reeves announced that rail fares in England would be frozen in 2026 – the first such freeze for 30 years – but it is unclear if the Government will extend this for a second year.