UK inflation climbed to 2.9% in July, its highest level since March, as soaring household energy costs linked to the Iran war reversed June’s sharp slowdown in price growth.
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation rose from 2.6% in June to 2.9% in July. Prices increased 0.3% during the month, compared with a 0.1% rise in July last year. CPIH, which includes owner-occupier housing costs, also increased sharply from 2.8% to 3.1%.
UK Inflation Rate (Source: The Office for National Statistics)
Energy Prices Drive UK Inflation Higher
The biggest upward pressure came from housing and household services after Ofgem raised its energy price cap by 13% for July through September.
The cap increased by £221 to £1,862 a year for a typical dual-fuel household under the consumption measure used for the current comparison. Gas prices jumped 14.7% in July alone, the largest monthly increase since October of 2022, while electricity prices rose 3.6%.
Higher wholesale energy prices after the outbreak of conflict in the Middle East were a major factor behind the increase. The ONS said the July cap was the first to fully incorporate wholesale prices affected by the conflict.
However, the inflation picture was not uniformly negative. Core CPI, which strips out energy, food, alcohol and tobacco, remained unchanged at 2.6%. Services inflation eased from 3.6% to 3.4%, while food and non-alcoholic drink inflation slowed from 1.7% to just 1.3%, its lowest rate since September 2021.
Transport also provided some relief. Petrol prices fell by 3.1 pence per litre during July and diesel dropped by 8.8 pence, helping transport inflation slow from 5.7% to 3.6%.
Inflation Could Rise Above 3% as Winter Approaches
Even more pressure could be coming. Cornwall Insight now forecasts another 4% increase in the energy price cap from October as the Iran conflict, tight European gas storage and strong global liquefied natural gas demand keep wholesale prices elevated. On a like-for-like basis using the previous consumption assumptions, the consultancy estimates the cap could rise from £1,862 to around £1,941.
The rise in inflation also complicates the outlook for interest rates. The Bank of England kept Bank Rate at 3.75% in July, although three of its nine policymakers voted for a rise to 4%. The Bank currently expects CPI inflation to reach around 3.2% in October and November before easing.
Its next interest-rate decision is scheduled for Sept. 17.
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