UK Inflation Set to Surge Amid Energy Price Cap Hike

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

This would come on the back of Ofgem's announcement last month, which saw energy prices increase for millions of households. Investec economist Ellie Henderson said the energy price cap rise alone will add 0.5 percentage points to inflation for July.

There are concerns that inflation is set to keep rising as the Iran war could send energy costs even higher over the winter months, and as the hot weather damages crops and puts food costs under pressure. 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.

The Government's Great British Summer Savings Scheme may have helped to reduce prices on family attractions and children's meals thanks to a VAT reduction until September, but it is unlikely to be enough to prevent inflation moving further away from the Bank of England's 2% target.