July Inflation Surge Looms as Energy Prices Soar

UK inflation is expected to surge back up in July due to higher energy prices and heatwaves that may put pressure on food costs. The Consumer Prices Index (CPI) inflation rate is forecasted to rise to 2.9% in July, the highest since March, from a 15-month low of 2.6% in June.

The recent 13% hike in Ofgem's energy price cap will add 0.5 percentage points to inflation for July, according to Investec economist Ellie Henderson. This rise alone is likely to erase any progress towards the Bank of England's 2% target.

Victoria Scholar, head of investment at Interactive Investor, predicts that inflation will continue to rise, peaking above 3% later this year. She believes the Bank of England may raise interest rates from 3.75% to 4% by the end of the year to temper the risk of overheating and help push the inflation rate back in line with the central bank's target.