UK inflation set to near 3% as energy bill surge fuels cost-of-living squeeze

Figures from the Office for National Statistics, due Wednesday, are forecast to reveal that UK inflation edged up to close to 3% in July, up from 2.6% the month before, as soaring gas and electricity bills lifted the consumer price index. Ofgem raised the energy price cap by 13% in July, a move that Thomas Pugh of RSM UK estimates contributed about 0.44 percentage points to the rise, though cheaper petrol and diesel offered some relief.

The increase arrives as the ongoing Iran war rattles global oil markets, prompting the Bank of England to consider raising interest rates as early as September to prevent entrenched inflation. Prime Minister Andy Burnham must now balance new "breathing space" measures, such as a VAT cut on electricity, against the risk of inflation reaching 3.2% by year-end. Analysts at Interactive Investor expect the central bank to deliver roughly one quarter-point rate increase before the year closes, while warning that further Middle-East escalation could push inflation toward 4.5% by mid-2027.