July Inflation Forecast Set to Rise as Energy Prices Bite

UK inflation is expected to surge back up in July due to higher energy prices and potential food cost increases, according to economists.

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, with the energy price cap hike adding 0.5 percentage points to inflation for July.

Investec economist Ellie Henderson noted that the energy price cap rise alone will erase any progress towards the Bank of England's 2% target.

Victoria Scholar, head of investment at Interactive Investor, is forecasting 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.