Energy Price Cap Hike Drives UK Inflation Towards 3%

UK inflation is expected to surge in July due to the recent hike in energy prices. The increase in Ofgem's energy price cap by 13% last month, which saw the average gas and electricity bill rise by £221 to £1,862 a year, will add 0.5 percentage points to inflation for July, according to Investec economist Ellie Henderson.

The Government's Great British Summer Savings Scheme may have helped reduce prices on family attractions and children's meals thanks to a VAT reduction until September, but it is not enough to prevent inflation from moving further away from the Bank of England's 2% target.

Victoria Scholar, head of investment at Interactive Investor, forecasts that inflation will continue to rise, peaking above 3% later this year as the UK economy grapples with elevated energy prices and gridlock in the Strait of Hormuz.