Official figures due on Wednesday are expected to show UK inflation in July 2026 climbing to 2.9%, up from 2.6% in June, driven largely by a sharp rise in energy bills and the growing threat of higher food costs from this summer’s heatwaves. The Consumer Prices Index (CPI), which tracks the changing price of a basket of goods and services, last stood at 2.9% in March.
The CPI is the headline measure the Bank of England uses to judge whether price rises are under control. Its target is 2%, and July’s expected figure would push inflation further away from that goal.
Energy Price Cap Pushes UK Inflation July 2026 Higher
The main driver is Ofgem’s 13% increase to the energy price cap, which took effect last month. Ofgem is the regulator for the gas and electricity markets in Great Britain. The rise pushed the average annual gas and electricity bill up by £221 to £1,862 for a typical household paying by direct debit.
According to Uswitch, the current cap of £1,862 is 13% higher than the April cap, which stood at £1,663 per year for an average-use household. That context helps illustrate just how quickly bills have moved in a short space of time.
To trace the trajectory further back: Ofgem confirmed that from 1 October 2024, the cap for a typical household rose from £1,568 to £1,717 per year. The bill for an average household has therefore risen by nearly £300 in under two years. Looking ahead, Ofgem set the October to December 2025 cap at £1,755 per year, a 2% increase for that quarter, before the much larger jump that has now arrived.
Investec economist Ellie Henderson said the energy price cap rise alone will add 0.5 percentage points to inflation for July. She said: ‘It was already clear at the publication of the June print that any easing in inflationary pressures as per the headline measure wouldn’t last for long, with the July increase to the Ofgem energy price cap likely to erase any progress towards the Bank of England’s 2% target.’
Ofgem will announce the next price cap level, covering October to December, on 26 August.
Interest Rates, Food Costs and the Wider Pressure on Households
Victoria Scholar, head of investment at Interactive Investor, is forecasting further inflation pain ahead. She said: ‘Inflation is expected to continue to rise, peaking above 3% later this year, as the UK economy continues to grapple with the backdrop of elevated energy prices and the effective gridlock in the Strait of Hormuz. The Bank of England is likely to carry out roughly one 25 basis point hike by the end of the year as it looks to temper the risk of overheating and help push the inflation rate back in the direction of the central bank’s 2% target.’
A basis point is one-hundredth of a percentage point, so a 25 basis point rise would take the Bank of England’s base rate from its current 3.75% to 4%. Higher interest rates make borrowing more expensive and are intended to slow spending, which in turn eases price rises.
Energy is not the only concern. Producers warned earlier this week that soaring temperatures and droughts across the UK and Europe are damaging crops. The Food and Drink Federation said ‘fruit, vegetable and grain supply’ are being hit by recent heatwaves, with shortages expected to feed through to supermarket prices. Economists from the trade group suggested this will put upward pressure on food inflation going into 2027.
There are also concerns about energy costs over the winter. The conflict involving Iran could push energy prices still higher in the coming months, with the Strait of Hormuz remaining a pressure point for global supply.
One government measure that may have softened the blow slightly is the Great British Summer Savings Scheme, which cuts prices on family attractions and children’s meals through a VAT (Value Added Tax) reduction running until September. VAT is the tax added to most goods and services in the UK. Analysts do not expect it to be enough to keep July’s inflation figure below 2.9%.
There is a further consequence tied to July’s figures. The Office for National Statistics’ Retail Prices Index (RPI) inflation rate for July is used to set next year’s rail fare increases in England. Last November, the then-chancellor Rachel Reeves announced that rail fares in England would be frozen in 2026, the first such freeze for 30 years. Whether the Government will extend that freeze for a second year remains unclear.
