Energy Price Cap Hike Sparks Fears of Rising UK Inflation

UK inflation is expected to surge in July due to the recent energy price cap hike, according to most experts. The Consumer Prices Index (CPI) inflation rate is forecasted to rise to 2.9% in July, up from a 15-month low of 2.6% in June and the highest rate since March.

The energy price cap rose by £221 last month, taking the average gas and electricity bill to £1,862 per year. This increase is expected to add 0.5 percentage points to inflation for July, according to Investec economist Ellie Henderson.

There are concerns that inflation may continue to rise as the hot weather damages crops and puts pressure on food costs. Victoria Scholar, head of investment at Interactive Investor, forecasts inflation pain to come, which could force the Bank of England to raise interest rates from 3.75% to 4% by the end of the year.