UK inflation rose to 2.9 percent in the year to July, up from 2.6 percent in June, as higher household energy bills pushed consumer prices higher, according to the Office for National Statistics.
The increase matched economists’ expectations and took the Consumer Prices Index to its highest level since March. The rise followed a 13 percent increase in the energy price cap in July.
Ofgem’s household energy price cap increased to £1,862 for the period, reflecting higher global oil and gas costs linked to the continuing conflict involving Iran.
Mike Hardie, deputy director for prices at the ONS, said the increase was mainly driven by a sharp rise in gas prices following the latest change to the energy price cap. He said it was the biggest rise in gas prices in almost four years.
Other factors also contributed to the increase. Furniture prices fell by less than usual for the time of year, while clothing prices recorded a smaller decline as retailers offered fewer discounts.
There were signs of easing pressure in several other areas. Food inflation fell to 1.3 percent in July from 1.7 percent in June, reaching its lowest level in almost five years.
Services inflation, which is closely monitored by the Bank of England, also declined to 3.4 percent from 3.6 percent. Core inflation, which excludes food and energy prices, remained unchanged at 2.6 percent.
The Bank of England has a target of keeping inflation at 2 percent over the medium term. Its main interest rate has remained at 3.75 percent since December, although financial markets continue to assess the possibility of a rate increase before the end of the year if renewed conflict pushes energy costs higher.
Yael Selfin, chief economist at KPMG UK, said the figures were unlikely to cause major concern at the Bank because domestic price pressures were still easing and the inflation rate remained broadly in line with its forecasts.
Chancellor John Healey said the ongoing conflict in the Gulf continued to affect prices in Britain but argued that the economy remained resilient. He pointed to a government plan to remove VAT from household electricity bills from October for six months as a measure intended to ease pressure on families.
The latest inflation figures come as the government faces growing scrutiny over the cost of living, taxation and public spending.
Opposition parties criticised the government over household costs, with the Conservatives and Reform UK arguing that government policies were contributing to rising expenses.
The inflation reading also has implications for rail fares, as the Retail Price Index is traditionally used to calculate annual fare increases. However, rail fares have been frozen until March 2027 under a previous government decision.
The latest figures follow a week of financial market pressure, with long-term UK borrowing costs approaching their highest level since the late 1990s. Slower private-sector wage growth has also reduced some of the pressure on the Bank of England to respond aggressively to inflation.
