UK inflation is expected to surge back to 2.9 per cent in July, reversing June’s 15-month low of 2.6 per cent when the Office for National Statistics releases its figures on Wednesday.
Economists are warning that the summer economic boost, driven by heatwaves and the World Cup, is unlikely to last as rising energy costs take hold across British households.
The energy regulator Ofgem raised its price cap in July, allowing average annual gas and electricity bills to climb by £221, a 13 per cent increase, bringing the typical household bill to £1,862 per year.
Ellie Henderson, an economist at Investec, said the jump in energy prices alone will add 0.5 percentage points to July’s inflation reading.
Henderson warned that “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.”
RSM chief economist Thomas Pugh acknowledged that easing motor fuel inflation would partly offset the price cap rise, but said it would still add “fresh pressure to household budgets and [complicate] the outlook for interest rates.”
UK economic growth has already slowed to 0.4 per cent, with economists describing it as an early warning sign of an impending slowdown as higher prices and borrowing costs linked to the Iran war filter through.
Industry figures had cautioned earlier this year that food inflation could reach as high as 10 per cent, as a direct consequence of the ongoing Middle East conflict disrupting global supply chains.
Pugh said food inflation could dip slightly in July as lower wholesale food prices from late last year feed into the system, before rising again later in 2026.
The Food and Drink Federation flagged that “fruit, vegetable and grain supply” are being hit by recent heatwaves, with crop shortages expected to push supermarket prices higher in the coming months.
Analysts at Investec added that an El Nino weather event could compound these pressures further, warning it “risks reinforcing upward price pressures” across global food markets.
Former Chancellor Rachel Reeves introduced the Great British Summer Savings Scheme earlier this year, cutting VAT on family attractions and children’s meals until September, though economists say the measure will not be enough to keep inflation near target.
Victoria Scholar, head of investment at Interactive Investor, said: “The Bank 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 [its] target.”