Key facts
- UK inflation is projected to reach 2.9% in July, up from 2.6% in June.
- A 13% rise in the Ofgem energy price cap contributed significantly to the expected inflation increase.
- The Bank of England forecasts inflation to hit 3.2% by the end of the year.
- The Bank of England is considering an interest rate hike as early as September.
- Global energy market volatility, influenced by the Middle East conflict, is contributing to inflationary pressures.
British households are bracing for a renewed cost of living crisis as soaring energy bills are expected to push inflation close to 3% in July. Official figures from the Office for National Statistics (ONS) are anticipated to show a jump from June's 2.6% rate, primarily due to a 13% increase in the Ofgem energy price cap. This resurgence in inflation adds pressure to household budgets and complicates the Bank of England's monetary policy decisions.
Economists predict the rise in energy costs will add approximately 0.44 percentage points to the headline inflation rate, though this may be partially offset by falling petrol and diesel prices. The ongoing volatility in global energy markets, exacerbated by the conflict in the Middle East, is contributing to renewed inflationary pressures worldwide. Despite Britain's economy showing resilience and growth, the impact of higher energy prices is expected to weigh more heavily in the latter half of the year.
The Bank of England forecasts inflation to reach 3.2% before the end of the year, even with government measures like VAT cuts on electricity and a cap on bus fares. These measures are expected to have a modest impact on lowering the inflation rate. City investors are anticipating potential interest rate hikes from the Bank of England, with markets pricing in a significant chance of a quarter-point increase at its next policy meeting in September. Victoria Scholar, head of investment at Interactive Investor, noted that inflation is expected to peak above 3% later this year, prompting the Bank to consider rate hikes to temper overheating risks and steer inflation back towards its 2% target.