UK Inflation Set to Surge in July Amid Energy Price Hike

The UK's inflation rate is expected to surge in July due to higher energy prices, according to most experts. 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 and the highest rate since March. This comes on the back of a 13% hike in Ofgem's energy price cap last month, which saw the average gas and electricity bill increase by £221 to £1,862 a year.

Investec economist Ellie Henderson said that the energy price cap rise alone will add 0.5 percentage points to inflation for July. She also noted that 'it was already clear at the publication of the June print that any easing in inflationary pressures as per the headline measure wouldn’t last for long, with the July increase to the Ofgem energy price cap likely to erase any progress towards the Bank of England’s 2% target.'

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.