UK inflation rose to 2.9 per cent in the year to July, up from 2.6 per cent the previous month, the Office for National Statistics said on Wednesday, after a 13 per cent increase in the energy price cap pushed up household bills.
The rise was in line with analysts’ expectations and took the consumer prices index (CPI) to its highest rate since March, according to figures published by the ONS. It follows a fall in inflation to 2.6 per cent in June.
The Ofgem price cap rose to £1,862 in July. It was the first time the cap had taken into account the rise in global oil and gas prices caused by the war with Iran, which is now close to entering its seventh month.
Mike Hardie, deputy director for prices at the ONS, 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.”
Food inflation fell to 1.3 per cent in July from 1.7 per cent the previous month, its lowest rate in almost five years. Services inflation, which is closely monitored by the Bank of England, edged down to 3.4 per cent from 3.6 per cent, while core inflation, which strips out volatile food and energy costs, was unchanged at 2.6 per cent.
The Bank is required to keep inflation at 2 per cent over the medium term. Interest rates have been held at 3.75 per cent since December, but investors think there is a chance of a rise before the end of the year, especially if there are further flare-ups in the Iran war.
Yael Selfin, chief economist at KPMG UK, said the data would not be “cause [for] significant concern for the Bank of England, with domestic price pressures still moderating and inflation broadly in line with its latest projections”.
John Healey, the chancellor, said the conflict in the Gulf “continues to impact prices here at home, but Britain’s economy is resilient”. He said he and prime minister Andy Burnham had given families “breathing space” by removing VAT from electricity bills, a measure that takes effect in October and lasts six months.
Mel Stride, the shadow chancellor, said: “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.”
Robert Jenrick, Reform’s Treasury spokesman, said: “Andy Burnham talks a big game but so far all his policies are doing is exploding people’s bills. The only way to cut the cost of living is to stop wasting money on foreign aid and benefits and spend it on working people instead.”
The July inflation figure, as measured by the retail price index (RPI), is typically used to set the annual increase in rail fares, although the previous chancellor, Rachel Reeves, announced in the November 2025 budget that fares would remain frozen until March 2027.
On Tuesday, long-term UK government borrowing costs came close to a post-1998 high amid a global bond sell-off. Separate data released earlier this week showed private-sector pay growth had slowed to a six-year low, which analysts said would reduce the likelihood of the Bank needing to act to tame inflation.
