UK Inflation Set to Rise Amid Energy Price Cap Increase

The UK's inflation rate is expected to rise in July, according to Victoria Scholar, head of investment at Interactive Investor. The predicted increase from 2.6% in June to around 2.9% in July is largely due to higher domestic energy bills following a 13% jump in Ofgem's energy price cap.

Scholar attributed the rise to 'a quirk in the mechanism' rather than the Iran war, but noted that geopolitical turmoil and rising wholesale gas prices have contributed to the increase. Higher airfares over the summer travel season may also add pressure on inflation, although the government's Great British Summer Savings scheme will help reduce prices.

Scholar expects inflation to continue rising, peaking above 3% later this year as the UK economy deals with elevated energy prices and gridlock in the Strait of Hormuz. The Bank of England may implement a 25 basis point interest rate hike by the end of the year to temper the risk of overheating and bring inflation back to its 2% target.