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Energy cap lifts CPI
UK inflation rose to 2.9% in July, up from 2.6% in June, as higher household energy bills followed a 13% increase in the price cap set by Ofgem.
“UK inflation rose to 2.9% in the 12 months to July, a four-month high”
The Office for National Statistics said the rise was driven by gas prices, which rose by 14.7% in July from a year ago, the largest rise in gas prices since October 2022.
Core CPI, which excludes more volatile energy and food costs, was unchanged at 2.6%, while transport costs rose by 3.6% in the 12 months to July versus a 5.7% increase the previous month.
The Independent linked the inflation jump to the 13% hike in Ofgem’s energy price cap, saying the average gas and electricity bill increased by £221 to £1,862 a year.
In response to the data, Reuters quoted British Finance Minister Jeremy Hunt saying, "Inflation stemming from the Iran-related war continues to affect prices here, but the British economy remains resilient."
Debate over rates
Multiple outlets framed the inflation print as a renewed cost-of-living squeeze tied to the Iran war and the energy price cap, with the Guardian saying the 13% increase at the start of July led to a rise in gas and electricity bills.
The Guardian reported that the Bank of England is considering whether to raise interest rates from as early as next month, while Reuters said economists surveyed by Reuters expected inflation to rise to 2.9% and that Bank of England projections later last month estimated a lower peak of 2.8%.
Reuters also reported that core inflation was slightly higher than anticipated at 2.6% instead of 2.5% in Reuters’ consensus, and that the pound and UK government bond futures showed no immediate reaction to the data.
Morningstar quoted Michael Metcalfe, head of macro strategy at State Street Markets, saying, "With utility prices resetting, the second half of 2026 was always going to be harder on the inflation trend than the first."
Morningstar added that activity in derivatives markets had previously indicated a rate hike at the Bank’s November meeting was likely, but now signals no interest rate rises for the next three meetings.
Households and policy
The Independent said CPIH figures, which include household costs, rose from 2.8% to 3.1%, with housing and household services and furniture making the largest upward contributions.
“Food and Drink Federation said: “It’s good news for consumers as food inflation continued to fall for another month in July.”
It also reported that Food and Drink Federation said food inflation continued to fall for another month in July, while warning that supply chain disruption and "extreme weather" will make it "very challenging for manufacturers to swallow any higher costs."
The Guardian described Andy Burnham’s government facing a challenge to give “breathing space” to hard-pressed households, pointing to measures including cutting VAT to reduce consumer electricity bills by an average of £45 a year from October.
Hürriyet Daily News quoted finance minister John Healey saying, "Iran war inflation continues to impact prices here at home, but Britain's economy is resilient," after the ONS data.
Looking ahead, Morningstar said the Bank of England will meet on Sept. 17, a day after the ONS’s next inflation data release covering August 2026, and noted that inflation could accelerate further in August while remaining in the low threes.
