Energy price cap hike set to push UK inflation above 2.9%

UK consumers will see their average annual gas and electricity bill rise by £221, a 13 per cent jump, after Ofgem lifted the energy price cap for July. The Office for National Statistics is slated to release the Consumer Prices Index (CPI) on Wednesday, and economists forecast a climb to 2.9 per cent from June’s 2.6 per cent, the lowest level in 15 months.

Why the surge matters

The extra cost is not just a line‑item for households; it feeds directly into the headline inflation figure that the Bank of England uses to set interest rates. Ellie Henderson, an economist at Investec, warned that the cap increase alone could add half a percentage point to July’s CPI.

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 two per cent target.

While lower motor fuel inflation will partially offset the energy shock, analysts say food prices could soon re‑ignite pressure. Heat‑related crop shortages have already nudged wholesale food costs higher, and an emerging El Niño pattern may exacerbate the trend.

What comes next

Economists expect the Bank of England to consider at least one 25‑basis‑point rate increase before year‑end to curb overheating. Earlier this year, Rachel Reeves introduced the Great British Summer Savings Scheme, cutting VAT on family attractions and children’s meals until September. While the measure offers modest relief, it is unlikely to offset the broader inflationary drift.

In the longer view, the combination of higher energy bills, lingering food price risks and geopolitical uncertainty, highlighted in a recent analysis of UK growth prospects that warned of war‑related price shocks, suggests that inflation could remain above the Bank’s 2 per cent goal for several quarters.

Households will feel the squeeze, and businesses will watch closely as monetary policy adjusts to keep the economy on a stable footing.