City economists have broadly indicated that inflation is forecast to peak later this year
Mauricio Alencar www.cityam.com
08:08, 19 Aug 2026
Prime Minister Andy Burnham(Image: Zeynep Demir/Anadolu via Getty Images)
Inflation has surged following the reset of the energy price cap, according to official figures, marking what is likely to be the start of a prolonged period of rising price growth.
The Office for National Statistics (ONS) placed the consumer price index inflation reading at 2.9 per cent for the 12 months to July. The previous inflation reading stood at 2.6 per cent.
Services inflation, a closely monitored measure by Bank of England policymakers as it offers signals on wage pressures, eased to 3.4 per cent, while core inflation, which excludes food and energy, came in at 2.6 per cent.
“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,” Mike Hardie, deputy director for prices at the ONS, said.
“The prices of raw materials and goods leaving factories slowed again, driven by a drop of crude oil and refined petroleum respectively.”, as reported by City AM.
Chancellor John Healey has declared “Britain’s economy is resilient” despite the Iran war impacting “prices here at home”.
He threw his weight behind government cost of living measures designed to ease the burden on households.
“We have cut VAT on electricity bills and capped bus fares at £2 – to give breathing space to those feeling the strain,” Healey said. “There is more to do to restore hope and build a stronger economy where prosperity is shared more fairly across Britain.”
Shadow chancellor Sir Mel Stride said: “Price rises are accelerating once again under Labour. When the Conservatives left office inflation was bang on the two per cent target, now it has been above that level for 22 months in a row.
“This will be a worry for families across the country. Labour’s tax rises and business bashing have driven the cost of living higher and higher, yet Andy Burnham refuses to rule out yet more tax hikes at the Budget.”
Scott Gardner, investment strategist at J.P. Morgan Personal Investing, said July data showed the impact of the Iran war was feeding into household bills.
“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,” Gardner said. “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.”
The steeper increase in prices in the year to July threatens to undermine Andy Burnham’s cost of living agenda.
City economists have broadly indicated that inflation is forecast to peak later this year or in early 2027 at a minimum of around three per cent. The delay will materialise as the effects of volatile energy prices gradually filter through to British households.
The previous government under Sir Keir Starmer maintained that diplomacy with President Trump and leaders across the Middle East was the “best economic policy” to get bills down for households.
Prior to departing Number 10, Starmer called upon his successor to take a more active role in international relations. Burnham has faced mounting criticism for neglecting diplomatic responsibilities, choosing instead to concentrate on matters at home.
On Tuesday, UK borrowing costs as measured by 10-year gilt yields reached a near-two decade peak as traders’ concerns about interest rate increases intensified.
The UK government issued medium-term bonds with a yield of 5.155 per cent, marking the highest interest rate on such debt since 2007.
The Bank of England has recently cautioned that it may be forced to lift interest rates should disruption to oil and gas trade flows across the Gulf region persist as a consequence of tensions between the US and Iran.
Traders remain divided over whether the Bank might opt to raise rates amid inflation concerns at its next decision in September.
Felix Feather, economist at Aberdeen, noted that markets remained “largely undisturbed” by the elevated inflation rate and continued to anticipate “modest tightening” in monetary policy.
“Given evidence of a slowdown in underlying domestically generated inflation, as opposed to more internationally driven goods such as energy commodities, and soft labour market conditions, we see the Bank on hold for the rest of the year,” Feather said.
Elevated borrowing costs could place government plans to alleviate the cost of living under additional strain, restricting the room for tax reductions or increased expenditure that might ease the financial burden on households and businesses.
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