Wednesday’s official inflation data is expected to show the July energy price hike pushing UK inflation to its highest rate since March, with economists warning that further rises are likely before the year is out. Many forecasters are predicting that Consumer Prices Index (CPI, the main measure of how fast prices are rising) inflation will reach 2.9% in July, up from a 15-month low of 2.6% in June.
The CPI measures the average change in prices paid by households for a basket of goods and services, from food and clothing to energy and transport. It is published monthly by the Office for National Statistics (ONS) and is the figure the Bank of England uses when setting interest rates.
How the July energy price hike UK inflation figure adds up
The main driver behind the expected jump is the 13% rise in Ofgem’s energy price cap, which came into effect in July. Ofgem is the regulator for gas and electricity markets in Great Britain. The price cap sets a limit on the unit rate suppliers can charge, and the July increase pushed the average annual gas and electricity bill up by £221 to £1,862 a year.
According to Ofgem, that translates to an increase of around £18 a month for the average household using both gas and electricity. The regulator also noted that when adjusted for inflation, the new cap is 6% higher than the equivalent period in 2025, underlining how much ground households have lost in real terms.
Investec economist Ellie Henderson said the energy price cap rise alone will add 0.5 percentage points to the July inflation figure. 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.”
The Government’s Great British Summer Savings Scheme, which cuts prices on family attractions and children’s meals through a VAT reduction running until September, may have offered some limited relief. But economists suggest it has not been enough to prevent inflation moving further away from the Bank of England’s 2% target.
Iran conflict and food costs add to the pressure
Beyond the immediate energy cap increase, there are wider concerns about what comes next. The conflict involving Iran has created significant turbulence in global energy markets, with knock-on effects for British consumers. According to the BBC, oil prices initially fell sharply after a deal was announced, but have since risen again as the US and Iran resumed attacks in the Strait of Hormuz in July. The Strait of Hormuz is a narrow waterway between the Persian Gulf and the Gulf of Oman, through which a large share of the world’s oil supply passes.
Victoria Scholar, head of investment at Interactive Investor, is forecasting inflation to keep rising and peak above 3% later this year. 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 25 basis point rise means an increase of 0.25 percentage points. Scholar is forecasting that Bank of England interest rates could rise from 3.75% to 4% by the end of the year.
Food costs are also coming under scrutiny. The Food and Drink Federation warned earlier this week that soaring temperatures and droughts across the UK and Europe are hitting “fruit, vegetable and grain supply,” with crop shortages expected to feed through to supermarket prices. Economists from the Federation suggested this will put upward pressure on food inflation going into 2027.
There is also a separate reason to watch July’s figures closely. The ONS’s Retail Prices Index (RPI) data for July is used to set the following year’s rail fare increases in England. Last November, the then-Chancellor Rachel Reeves announced that rail fares would be frozen in 2026, described as the first such freeze for 30 years. Whether the Government will extend that freeze for a second year remains unclear, and a higher-than-expected July RPI reading would add pressure to that decision.
