UK Inflation Surges to 2.9% Amid Energy Price Cap Hike

UK inflation accelerated to 2.9% in July as the household energy price cap surged by 13%, leading to higher gas and electricity bills. This marks a sharp increase from June's 15-month low of 2.6%. The Office for National Statistics published the data on Wednesday, which matched the median forecast in a Reuters poll.

According to the ONS, gas prices were the main driver behind the uptick, rising 14.7% year-on-year after falling 7.2% in the same period last year. The typical dual-fuel direct debit bill now stands at approximately £1,862, up £221 from the previous quarter.

Core inflation held steady at 2.6%, while CPIH, which includes owner-occupiers' housing costs, rose to 3.1% from 2.8%. The Bank of England had projected a more modest rise to 2.8% in forecasts published at the end of July.

Experts predict that inflation will continue to rise and potentially peak above 3% later this year, forcing the Bank of England to deliver one 25-basis-point hike by year-end, taking the bank rate to 4%. The government plans to remove the 5% VAT on residential electricity from October, a measure estimated to reduce the fourth-quarter price cap by roughly £45.