UK inflation rose in July to 2.9%, representing a 0.3 percentage-point increase from a 15-month low of 2.6% in June, according to the Office for National Statistics. This is the highest annual inflation rate since March, when prices spiked following the outbreak of the war in Iran.
The increase in headline consumer prices is largely tied to utility regulator Ofgem’s 13.5% price cap increase at the beginning of July, which added 0.4 percentage points alone.
Michael Metclafe, head of macro strategy at State Street Markets, said: “With utility prices resetting, the second half of 2026 was always going to be harder on the inflation trend than the first.”
However, not all industries saw a spike. Fuel prices, air fares and restaurants costs all fell. In addition, new prime minister Andy Burnham’s decision to cut VAT from 20% to 5% on families eating out and other cultural services helped to limit inflation.
Kevin Brown, savings expert at Scottish Friendly, pointed out that energy may only be exerting part of the pinch as we move into autumn.
“Expensive fuel and fertiliser are adding pressure to food production and supply chains, while an exceptionally hot summer raises another threat to harvests – as a result, families may continue to feel the inflationary fallout from this at the till as well as through their utility bills,” Brown said.
Meanwhile, Scott Gardner, investment strategist at JP Morgan Personal Investing, agreed that the rebound in UK inflation is a “warning shot” for what could come next.
Gardner said: “We are keeping an eye out to see whether higher global energy prices have a knock-on effect for consumer goods prices, electronics and the wider artificial intelligence build-out.
“This would have an impact on the UK economy and present a challenge for the Bank of England, which is keen to avoid hiking rates. If goods inflation accelerates, then it will become difficult for BofE policymakers to maintain rates at the current level.”
Today’s inflation figures follow updated UK employment figures, which showed continued soft labour market conditions.
Another round of labour market and CPI inflation data will come ahead of the Bank of England’s next meeting on the base rate on 17 September.
Metcalfe expects inflation to accelerate further in August, which will put the Bank under further pressure.
“But as long as inflation remains in the low threes, in line with forecasts, the new more balanced, even dovish, tone of the Bank of England suggests they may escape the year without having to move interest rates at all,” Metcalfe said.
So far, the Bank has held at 3.75%, despite continued pressures and uncertainties generated by the Middle East conflict and turbulent energy prices.