Consumer Prices Index (CPI) inflation in the United Kingdom rose to 2.9% in July, a significant increase from the 2.6% recorded in June, according to the Office for National Statistics (ONS). This marks the highest inflation rate since March and presents a new challenge for Prime Minister Andy Burnham's administration.
The surge in inflation was primarily driven by a substantial increase in gas prices, which saw the largest hike in nearly four years. This followed a 13% rise in Ofgem's energy price cap last month, leading to an average annual increase of £221 in household gas and electricity bills.
"Inflation rose in July, driven by a sharp increase in gas prices following this month's change to the energy price cap," said Mike Hardie, deputy director for prices at the ONS. "This was the largest rise in gas prices for almost four years." Other contributing factors included furniture prices falling by less than usual and a smaller-than-expected decrease in clothing prices due to reduced discounting.
The government's Great British Summer Savings Scheme, which offered VAT reductions on family attractions and children's meals until September, had a limited impact on overall consumer inflation, failing to bring it closer to the Bank of England's 2% target.
Concerns are mounting that inflation could continue to rise, particularly as geopolitical events like the Iran war could drive energy costs higher in the winter months. Additionally, recent heatwaves and droughts in the UK and Europe are expected to impact food production, potentially leading to increased food prices.
Chancellor John Healey acknowledged the ongoing impact of global events on domestic prices, stating, "Iran war inflation continues to impact prices here at home, but Britain's economy is resilient." He highlighted government measures such as VAT cuts on electricity bills and capped bus fares at £2 as efforts to provide relief to households.
Experts predict further inflationary pressures. Victoria Scholar, head of investment at Interactive Investor, forecasts inflation to peak above 3% later this year, driven by elevated energy prices and supply chain disruptions. She suggested that the Bank of England might consider raising interest rates from 3.75% to 4% by year-end to counter overheating risks.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, identified rising inflation as a significant threat to UK economic growth, warning that it could erode household budgets, increase government borrowing costs, and reduce fiscal flexibility.
Low-income families are particularly vulnerable to the surge in inflation, as they spend a larger proportion of their income on essential energy costs, according to Tilly Cook, senior policy adviser at the Joseph Rowntree Foundation.
Concerns about food inflation are also growing. The Food and Drink Federation has warned that recent heatwaves are affecting the supply of fruits, vegetables, and grains, which is likely to translate into higher supermarket prices. Economists suggest this could put upward pressure on food inflation into 2027.
The Retail Prices Index (RPI) inflation rate for July was 2.6%. This figure is significant as it is used to calculate next year's train fare increases. While rail fares in England were frozen for 2026, the government has not yet indicated whether this freeze will be extended for a second year.