UK consumer price inflation climbed to 2.9% in July, a four-month high, as a jump in household energy bills pushed gas prices up at their fastest pace since October 2022. Core and services inflation held broadly steady, but economists say further energy-driven increases are likely before year-end, keeping the Bank of England on course to hold rates in September.
UK consumer price inflation accelerated to 2.9% in the 12 months to July, a four-month high, up from 2.6% in June, according to official data released Wednesday. The reading matched the consensus forecast and landed only marginally above the Bank of England's own July projection of 2.8%.
Ofgem's energy reset drives the jump
Ofgem's quarterly household energy price cap reset drove almost the entire increase, adding £221 to the average dual-fuel bill. Gas prices rose 14.7% on the month, the largest annual rise since October 2022, while electricity prices rose a more modest 3.6%.
According to Jefferies economist Modupe Adegbembo, the report reflected "a four-month high driven almost entirely by the Ofgem energy price cap reset" rather than a broader price problem. Separately, consultancy Cornwall Insight forecasts the October reset will lift the typical annual bill to about £1,729, a three-year high, adding a further layer of pressure ahead.
Core price pressure stays contained
Core inflation, which excludes food and energy, held steady at 2.6%, defying expectations of a slight easing to 2.5%. CPIH, the ONS's preferred measure including owner-occupier housing costs, rose to 3.1% from 2.8%.
Services inflation, closely watched by the Bank's rate-setters, eased to 3.4% from 3.6%. Food and drink inflation fell to 1.3%, its lowest level since August 2024.
Bank of England rate outlook weighs on the pound
Jefferies said the report reinforces the case for a BoE hold. Swaps markets are pricing in at least one more BoE rate rise by year-end, though a hike at the September meeting remains unlikely, Samuel Fuller of Financial Markets Online noted. Capital Economics still expects the BoE to hold at 3.75% this year and cut to 3.00% in 2027, rather than raise borrowing costs toward the 4.25%-4.50% range markets currently price.
Ofgem's next price cap reset, due Aug. 26, is expected to raise the typical bill further, to around £1,941, keeping headline inflation elevated through the fourth quarter.
Sources: Economic Indicators News, The Guardian
Trading involves risk.
Risk Disclaimer
