UK inflation hits 2.9% for the year to July, its highest reading in four months, driven by soaring gas prices and a sharp rise in household energy bills, according to figures from the Office for National Statistics (ONS). Gas prices rose at the fastest pace in almost four years, the ONS said, after disruption to global oil supplies linked to the US-Israel war with Iran.
Energy costs for households rose on 1 July after Ofgem, the energy regulator, increased the price cap on gas and electricity by 13%, adding £221 a year to the typical bill. Ongoing conflict, which has led to effective closures of the Strait of Hormuz, a key trading route for ships carrying oil, liquefied natural gas and other commodities, has kept upward pressure on prices. A European heatwave has added to the strain: independent energy consultancy Cornwall Insight said the hot weather was increasing gas demand for power generation to meet air conditioning and cooling needs.
October Cap Forecast and What UK Inflation Hits 2.9% Means for Bills Ahead
The picture for household bills is not expected to improve quickly. Cornwall Insight forecasts a further 4% rise in energy bills from October, which would take them to their highest level since July 2023. In a forecast published on 19 August 2026, Taupia reported Cornwall Insight’s projection that the October to December price cap would stand at £1,729 a year for a typical dual-fuel household paying by Direct Debit.
On the policy side, Prime Minister Andy Burnham has said a 5% tax on electricity bills would be removed from 1 October as part of efforts to ease cost-of-living pressures, according to Reuters. However, that relief would not apply to gas costs, which are also covered by the price cap, limiting the benefit for households facing higher overall bills.
Chancellor John Healey acknowledged the Iran war was continuing to affect UK prices but said the economy was resilient. ‘We have cut VAT on electricity bills and capped bus fares at £2, to give breathing space to those feeling the strain,’ he said. ‘There is more to do to restore hope and build a stronger economy where prosperity is shared more fairly across Britain.’
Not All Bad: Food Inflation Falls to Near Five-Year Low
Amid the energy gloom, there was some relief elsewhere. Food inflation fell to 1.3%, its lowest rate in close to five years. The British Retail Consortium’s lead economist Harvir Dhillon said prices for pasta, olive oil and fresh fruit all fell in July, which he said demonstrated that ‘strong competition among grocers is firmly keeping a lid on people’s weekly shop.’ Motor fuel price rises also eased, coming in at 15.5% in the year to July compared with 21.3% in the year to June, though they remain well above 2025 levels. ONS prices director Mike Hardie said furniture prices, which fell by less than usual for that time of year, added to upward inflation pressure, as did clothing, which had not been discounted as much as usual.
Despite the mixed picture, economists do not expect the July reading to push the Bank of England into cutting its key interest rate at its September meeting. KPMG’s chief economist Yael Selfin described July as the start of a gradual rise in inflation and said the figure was not enough to prompt a change in rate-setting decisions. She added that energy-related costs were expected to push inflation higher over coming months, to a peak of about 3.5%.
Ruth Gregory, chief economist of Capital Economics, said she expected inflation to fall back to the Bank’s 2% target ‘by the end of next year’, provided energy prices did not rise much further. ‘The Bank of England will keep rates at 3.75% this year and cut them to 3% next year,’ she said.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, sounded a more cautious note, saying rising inflation was ‘likely to become the biggest threat to UK growth in the coming months as it eats into household budgets by increasing the cost of essentials.’ He also warned that drought-related increases in food prices could lie ahead. For those already stretched, the pressures are real and present. Penny Keevil, who founded crisis support centre Second Chance Medway, said the need for affordable food ‘now reaches across every part of the community’, with working people alongside those on benefits turning to her discounted food pantry. ‘Energy bills are still far too high and wages and incomes aren’t keeping up,’ she said. Cornwall Insight’s October forecast will be watched closely as the next concrete test of whether that pressure is set to intensify.
