Key facts
- UK inflation rose to 2.9% in July, up from 2.6% in June.
- Higher energy prices, influenced by the Middle East conflict, are a primary driver of the inflation increase.
- Services inflation eased to 3.4%, and core inflation stood at 2.6%.
- The Bank of England is considering raising interest rates due to inflation fears.
- Government measures include a VAT cut on electricity bills and a £2 bus fare cap.
UK inflation climbed to 2.9% in July, a rise from 2.6% in June, largely driven by escalating energy prices influenced by the conflict in the Middle East. This development exacerbates the cost of living squeeze for British households, posing a significant challenge for Prime Minister Andy Burnham's administration.
City economists had anticipated the increase in the Consumer Prices Index (CPI). The surge in energy costs follows geopolitical tensions. This situation places pressure on the Bank of England, which is evaluating a potential interest rate hike as early as next month to combat fears of entrenched inflation.
However, recent data indicating a slowdown in the jobs market, including a decline in job vacancies and subdued private sector pay growth, may dissuade the central bank from immediate action. The conflict in the Middle East and adverse weather impacting global food production have rekindled concerns about rising inflation worldwide.
The Bank of England had previously warned that a further escalation of the war could push UK inflation higher. In response to the economic pressures, Prime Minister Burnham announced measures aimed at providing "breathing space" to consumers, including a VAT cut on electricity bills expected to lower inflation by 0.1 percentage points.