UK Inflation to Remain Contained, Despite Energy Price Hikes

With energy prices rising due to the ongoing war in Iran, households are facing increased pressure. However, economists expect inflation to remain contained at around 3.5% later this year, which is less than initially feared.

The current food inflation rate of 1.3% is actually the lowest it's been in nearly five years, and wages have been outpacing inflation so far this year, easing the squeeze on many households.

However, energy cost pressures may push up prices faster in coming months as they take time to pass through supply chains. This could add pressure on new Prime Minister Andy Burnham and his Chancellor John Healey to provide more help ahead of the Budget.

The Bank of England believes inflation will come down to its 2% target in the medium-term, citing contained price pressures and moderate wage growth. Some analysts think interest rates may not rise this year due to these factors, but there are still risks they do, especially if inflation accelerates unexpectedly.