UK inflation increased to 2.9% year-on-year in July 2026, up from a 15-month low of 2.6% in June, matching economist forecasts according to data from the Office for National Statistics. This marks the first rise in headline CPI since March, with the primary driver being a surge in household energy bills following Ofgem’s 13% quarterly price cap increase. Gas prices jumped 14.7% in July, the largest monthly rise since October 2022, while electricity prices rose 3.6%. The housing and household services category saw annual inflation rise from 2.7% in June to 4.1% in July, making it the main contributor to the overall increase. Food inflation, in contrast, eased to 1.3%, the lowest since September 2021. Core CPI, which excludes energy, food, alcohol, and tobacco, remained steady at 2.6%, above the 2.5% forecast, indicating that underlying domestic price pressures were flat and the headline jump was almost entirely due to energy costs [1].
The Bank of England’s next Monetary Policy Committee (MPC) decision is scheduled for September 17, with three out of nine policymakers having voted for a rate hike at the July 30 meeting. However, Societe Generale’s Sam Cartwright argues that the recent easing in services inflation and signs of labour market loosening support a wait-and-see approach from the Bank of England. The baseline expectation is for the Bank Rate to remain at 3.75% throughout 2026, as this level of restrictiveness is seen as sufficient to restrain underlying inflation. Cartwright notes that any further escalation of the US-Iran-related energy conflict and renewed price spikes could prompt up to two 25 basis point rate hikes by the BoE. Nonetheless, he expects only modest second-round effects on wages and a limited increase in core inflation, given spare capacity in the economy and continued labour market loosening [2].
The July inflation data reverses a four-month trend of declining or flat prices, with both headline CPI and the broader CPIH (which includes owner-occupiers’ housing costs) rising for the first time since March 2026. The CPIH increased to 3.1% year-on-year in July from 2.8% in June. On a month-on-month basis, prices rose 0.3% in July compared to 0.1% in June [1].
Looking ahead, another Ofgem energy price cap increase is expected in October, and ongoing Middle East conflict continues to keep wholesale energy prices volatile, suggesting further potential inflationary pressures in the coming months [1].
CONCLUSION
UK inflation’s rise to 2.9% in July 2026 was driven primarily by surging energy costs, reversing a recent trend of easing price pressures. While the Bank of England is expected to maintain its current rate stance, further conflict-driven energy price spikes could force additional hikes. Market participants should monitor upcoming energy cap changes and geopolitical developments for their potential impact on UK inflation and monetary policy.