UK Inflation Climbs to 2.9% in July as Energy Bills Surge

UK consumer price inflation rose in July 2026, ending a recent downward trend and reaching its highest level in four months, driven primarily by a sharp increase in household energy costs.

The Office for National Statistics (ONS) reported on 19 August 2026 that the Consumer Prices

Index (CPI) increased by 2.9% in the 12 months to July, up from 2.6% in June. This matched market expectations but exceeded the Bank of England’s recent forecast of 2.8%. The broader CPI including owner-occupiers’ housing costs (CPIH) rose to 3.1% from 2.8%. On a monthly basis, both CPI and CPIH increased by 0.3%.

This marked the first rise in the annual rates since March 2026. Core CPI (excluding energy, food, alcohol and tobacco) held steady at 2.6%, while core CPIH edged up to 2.9%. Goods inflation accelerated to 2.2% from 1.7%, while services inflation eased slightly to 3.4% for CPI.

Energy Price Cap Drives the Increase

The main upward pressure came from housing and household services, where annual inflation jumped to 4.1% from 2.7%. This reflected the 13% rise in Ofgem’s energy price cap that took effect from 1 July 2026, lifting the typical dual-fuel household bill to £1,862 a year (under previous consumption assumptions) or an equivalent adjusted figure under updated typical domestic consumption values.

Gas prices surged 14.7% — the largest increase since October 2022 — while electricity prices rose 3.6%. Furniture and household goods also contributed positively, with inflation turning positive at 1.0% after a previous decline. Clothing and footwear, alcohol and tobacco, and health categories saw smaller upward movements.

The Ofgem cap increase was linked to higher wholesale energy prices earlier in the year, influenced by volatility in the Middle East. Finance minister John Healey described the figures as reflecting “Iran war inflation” impacts while noting the resilience of the UK economy.

Offsetting Factors

Not all categories pushed higher. Transport inflation slowed to 3.6% from 5.7%, providing the largest downward contribution, mainly due to lower motor fuel prices. The average price of diesel fell by 8.8 pence per litre between June and July. Food and non-alcoholic beverage inflation eased further to 1.3% from 1.7%, continuing a period of relative stability after earlier peaks.

Broader Context and Outlook

UK inflation remains above the Bank of England’s 2% target. In recent months it had fallen to a 15-month low of 2.6% in June, helped by moderating transport and food costs. The July uptick brings it closer to levels seen earlier in 2026 (3.3% in March).The Bank of England, which held Bank Rate at 3.75% at its late-July meeting, had already anticipated a rise in inflation later in 2026 as higher energy costs feed through. Its central forecast pointed to a peak around 3.2% by the end of the year, before a gradual return toward target. Policymakers continue to monitor risks of second-round effects on wages and broader prices amid ongoing Middle East-related energy volatility.

For households, the energy bill increase adds pressure to living costs even as food and fuel prices have eased. Core inflation remaining stable suggests underlying pressures are not accelerating sharply, but the energy-driven rise will keep the cost of living under scrutiny in the coming months. The next ONS release, covering August data, is scheduled for 16 September 2026.