Consumer prices in the UK rose 2.9% year-on-year in July, up from 2.6% in June and matching consensus expectations, as a surge in household energy costs offset easing food and services inflation.
The increase was driven almost entirely by Ofgem’s quarterly reset of the household energy price cap, which added £221 to the average dual-fuel bill. Gas prices jumped 14.7% month-on-month—the largest annual rise since October 2022—while electricity prices rose 3.6%. The cap’s impact pushed the CPIH measure, which includes owner-occupied housing costs, to 3.1% from 2.8%.
Core inflation, excluding energy, food, alcohol, and tobacco, held steady at 2.6%, defying forecasts for a slight easing to 2.5%. Services inflation edged down to 3.4% from 3.6%, while goods inflation excluding energy and food remained below 1% for a third consecutive month. Food and drink prices fell for the fourth straight month, dropping to 1.3%—the lowest rate since August 2024.
Analysts noted the inflationary pressure was concentrated in energy, with limited spillover into broader price pressures. Jefferies economist Modupe Adegbembo said the rise was "a four-month high driven almost entirely by the Ofgem energy price cap reset, not a broadening of price pressure." The report, alongside Tuesday’s labour market data showing cooling wage growth, reinforced expectations for the Bank of England to hold rates at its September meeting.
Capital Economics deputy chief UK economist Ruth Gregory said there were "still not many signs that businesses are starting to raise prices of other items to compensate for higher energy costs." The firm expects inflation to peak near 3.5% later this year before easing to 2.0% in 2027, with the BoE holding its benchmark rate at 3.75% in 2026 and cutting to 3.00% in 2027.
Deutsche Bank chief UK economist Sanjay Raja highlighted "some good news" in food and services inflation but cautioned that further upside risks remain, with the bank projecting CPI could peak near 3% later in 2026. Samuel Fuller, director of Financial Markets Online, described the data as showing "the inflationary whiplash of the Iran war has finally hit."
The next Ofgem price cap reset is scheduled for August 26 and is expected to lift the typical bill further to around £1,941, keeping inflation elevated through the fourth quarter.
