UK inflation is forecast to jump to 2.9% in July from 2.6% in June, driven by a 13% rise in the Ofgem energy price cap. The Bank of England now expects inflation to reach 3.2% by year-end, keeping a September rate hike in play.
British households face a fresh squeeze this week as official figures are expected to show headline inflation climbing to 2.9% in July, up from 2.6% in June. The Office for National Statistics figures, due Wednesday, will test the new government's ability to ease pressure on households before a difficult autumn budget.
Energy price cap drives the increase
The jump follows Ofgem's decision to lift its cap on household gas and electricity bills by 13% in July. Thomas Pugh, chief economist at RSM UK, said the increase would add about 0.44 percentage points to headline inflation, partly offset by falling petrol and diesel prices. According to Pugh: "The cost of living squeeze is set to return to the headlines".
Inflation had been on track to fall to close to 2% before the Iran war, but economists now warn the conflict's impact will weigh more heavily in the second half of the year.
Bank of England weighs rate path
The Bank of England predicts inflation will reach 3.2% before the end of the year, despite government measures such as a VAT cut on electricity bills. However, the Bank has warned that a worst-case escalation in the Middle East war could drive inflation to a peak of 4.5% by the middle of 2027.
City investors anticipate two quarter-point interest rate rises from the Bank before the end of next year, with markets pricing almost a one-in-four chance of the first hike coming at the Bank's September meeting, from a base rate of 3.75%. That rate calculus, set against stubbornly high inflation, is likely to stay in focus through Wednesday's print.
Source: Business | The Guardian
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