Key facts
- UK inflation is forecast to reach 2.9% in July, up from 2.6% in June.
- The Ofgem energy price cap increase will add an estimated 0.5 percentage points to July's inflation.
- Average annual household energy bills rose by £221 (13%) to £1,862.
- Food inflation may increase later in the year due to crop shortages and potential El Nino effects.
- UK economic growth slowed to 0.4% recently, signaling a potential slowdown.
Inflation in the UK is expected to rise to 2.9% in July, a notable increase from June's 15-month low of 2.6%, according to economists. This surge is primarily attributed to a recent hike in the energy price cap by regulator Ofgem, which added £221 to average annual household gas and electricity bills, representing a 13% increase to £1,862.
Economists predict this energy price jump alone will contribute 0.5 percentage points to the July inflation figure. While falling motor fuel prices may offer some offset, the overall impact is expected to strain household budgets and complicate the Bank of England's monetary policy decisions. The central bank aims to bring inflation down to its 2% target.
Recent data showed UK economic growth slowing to 0.4%, raising concerns about a potential economic slowdown exacerbated by higher prices and borrowing costs. Food inflation, which had been a significant concern due to the Middle East conflict, might see a slight dip in July due to lower wholesale prices but is expected to rise again later in the year. Factors such as recent heatwaves affecting crop yields and the potential impact of an El Nino weather event could further push up food prices.
Government initiatives like the Great British Summer Savings Scheme, which reduced VAT on certain family attractions, are expected to have a minor dampening effect on inflation but are unlikely to prevent the headline rate from moving further away from the Bank of England's target. Analysts suggest the Bank of England may implement one 25 basis point interest rate hike by the end of the year to curb inflationary pressures.