Higher energy prices have sent UK inflation surging back up amid fears the summer’s record heatwaves may also start putting pressure on food costs.
The rate of Consumer Prices Index inflation rose to 2.9 per cent in July – up from a 15-month low of 2.6 per cent in June and the highest rate since March, the Office for National Statistics said today.
This came on the back of a 13 per cent 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.
Mike Hardie, deputy director for prices at the ONS, said this morning: ‘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 Government’s Great British Summer Savings Scheme, which cuts prices on family attractions and children’s meals thanks to a VAT reduction until September, resulted in falls in prices for cultural events, historic monuments and cinema tickets.
But the ONS said the policy did not have a ‘substantial overall impact on headline consumer inflation’ – and therefore failed to stop inflation moving further away from the Bank of England‘s 2 per cent target.
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.
Ofgem will announce the next price cap level for October to December on August 26.
In response to the latest inflation figures, Chancellor John Healey said: ‘Iran war inflation continues to impact prices here at home, but Britain’s economy is resilient.
‘We have cut VAT on electricity bills and capped bus fares at £2 – to give breathing space to those feeling the strain.
‘There is more to do to restore hope and build a stronger economy where prosperity is shared more fairly across Britain.’
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 per cent to 4 per cent by the end of the year.
She said: ‘Inflation is expected to continue to rise, peaking above 3 per cent to 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 per cent to target.’
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said: ‘Rising inflation is likely to become the biggest threat to UK growth in the coming months as it eats into household budgets by increasing the cost of essentials, while also raising government borrowing costs and eroding the Chancellor’s fiscal headroom ahead of October’s Budget.
‘Softer services inflation is unlikely to reassure the Bank of England as it appears to reflect the temporary VAT cut on family attractions and children’s meals, rather than a genuine cooling in underlying price pressures.
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 the Retail Prices Index inflation rate in July was 2.6 per cent. This is notable, given 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.



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