British households are facing a renewed cost of living squeeze, with official figures due this week expected to show that soaring energy bills pushed inflation in July to close to 3%. Economists predict the UK's headline inflation rate will reach 2.9%, up from 2.6% in June.
The Office for National Statistics (ONS) figures, expected on Wednesday, are forecast to reflect the impact of Ofgem's 13% increase in the cap on household gas and electricity bills in July. Thomas Pugh, chief economist at RSM UK, stated this increase would add approximately 0.44 percentage points to headline inflation, partially offset by falling petrol and diesel prices.
The Bank of England is considering raising interest rates from as early as September due to concerns about persistently high inflation. The Bank predicts UK inflation will reach 3.2% before the end of the year, despite government measures such as a VAT cut to reduce consumer electricity bills by an average of £45 annually from October.
The ongoing conflict in Iran continues to affect global energy markets, contributing to renewed inflationary pressures worldwide. The Bank of England warned that a further escalation in the Middle East could drive UK inflation to a peak of 4.5% by mid-2027.