A jump in household energy bills pushed British inflation to a four-month high in July, matching forecasts, and it looks set to rise further as the war in Iran grinds on with no end in sight. Annual consumer price inflation rose to 2.9% in July from a 15-month low of 2.6% in June, the Office for National Statistics said on Wednesday.
Headline CPI inflation in the UK accelerated in Jul-26, rising faster at +2.9%yoy (Jun-26: +2.6%), the highest in 4 months and slightly above the Bank of England’s (BOE) projection of +2.8%. The increase was largely driven by higher household energy costs, following a +13% increase in the regulated energy price cap.
Underlying price pressures were stable, with core inflation remaining at +2.6%yoy, while the services inflation moderated slightly to +3.4%yoy (Jun-26: +3.6%yoy). Meanwhile, upstream cost pressures also showed signs of easing, with producer input inflation easing to +4.9%yoy (Jun-26: +7.4%yoy) and factory-gate inflation moderating to +3.1%yoy (Jun-26: +3.5%yoy), partly linked to lower crude oil prices.
The higher headline inflation reinforces the case for the BOE to remain cautious, although easing services and producer-price pressures reduce the urgency for further tightening. MBSB in its notes expects the BOE to keep its policy rate unchanged at 3.75% at the next meeting in Sep-26, still restrictive as inflation could temporarily rise above +3.0% later this year amid energy-related pressures. The balance of risks remains tilted towards a more hawkish stance as the energy-driven inflation may be more persistent, and generate second-round effects.
