Energy Price Hike Sends UK Inflation Soaring

UK inflation is expected to surge in July due to the recent hike in energy prices. According to forecasts, Consumer Prices Index (CPI) inflation will rise to 2.9% in July, up from a 15-month low of 2.6% in June. This increase is largely attributed to the 13% hike in Ofgem's energy price cap, which saw the average gas and electricity bill rise by £221 to £1,862 per year.

Investec economist Ellie Henderson noted that the energy price cap rise alone will add 0.5 percentage points to inflation for July. She warned that this increase would likely erase any progress towards the Bank of England's 2% target.

Victoria Scholar, head of investment at Interactive Investor, also 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. She attributed this rise to elevated energy prices and the ongoing tension in the Strait of Hormuz.

The recent heatwaves and droughts across the UK and Europe are also expected to drive up food costs, with economists warning that fruit, vegetable, and grain supply will be hit hard by crop shortages.