UK Inflation Set to Soar on AI Boom and Iran War

The UK is bracing for an increase in inflation, with economists predicting a rise to 2.9% in July, marking the first acceleration in four months. The Bank of England has warned that AI-related chip cost pressure could become a structural feature of inflation.

The ongoing Iran war is driving up costs for aviation fuel and household energy, while the AI boom is pushing memory chip prices higher. These rising costs are already being felt in smartphones, laptops, and gaming consoles. With resilient GDP growth and a tight labour market, rate-setters at the Bank of England are growing uneasy.

The upcoming release of jobs data will add to the pressure on interest rates, as will global developments such as Fed minutes and Canada-US tariff talks.