UK INFLATION RISES TO 2.9 PERCENT ON ENERGY BILL SURGE

Developing story: Bank of England guidance, market expectations and budget policy may change as officials respond to the July inflation report.

British inflation rose to a four-month high in July after a sharp increase in regulated household energy bills, reviving cost-of-living pressure for Prime Minister Andy Burnham’s government. Reuters reported that annual consumer price inflation increased to 2.9 percent from 2.6 percent in June, matching economists’ expectations but exceeding the Bank of England’s recent 2.8 percent forecast.

The Office for National Statistics said the increase reflected a 13 percent rise in the maximum tariff energy companies are allowed to charge households. That makes the July report an early measure of how the Iran-war energy shock and domestic utility pricing are feeding into household budgets.

The headline number is politically difficult because it arrived after a brief period of lower inflation. Households may not experience 2.9 percent as relief if their actual bills for gas, electricity, rent, transport and food remain high. That is especially true for lower-income families, where energy takes a larger share of spending.

The report gave the Bank of England some reasons for caution rather than alarm. Reuters reported that core inflation, excluding energy and food, was unchanged at 2.6 percent. Services inflation eased to 3.4 percent from 3.6 percent, and food and non-alcoholic drink inflation cooled to 1.3 percent, an almost two-year low.

Those details suggest the energy shock has not yet become a broad-based domestic inflation spiral. A slightly cooler labour market reported a day earlier may also limit second-round wage pressure. The central bank will still need to judge whether higher energy costs feed into expectations and prices over the next several months.

Finance Minister John Healey said Iran-war inflation continues to affect prices at home but that Britain’s economy remains resilient, Reuters reported. The statement reflects the government’s challenge: it must acknowledge the household squeeze while avoiding a message of crisis that could damage confidence.

The fiscal context is tight. Burnham’s government faces an October budget with limited room for broad assistance, especially after rising borrowing costs and pressure on public finances. Targeted support may be possible, but universal subsidies would be harder to finance without tax increases or additional borrowing.

What is confirmed is that U.K. inflation rose to 2.9 percent in July, driven largely by household energy bills. What remains unresolved is whether the increase is a temporary regulated-price effect or the beginning of another period in which energy costs keep inflation above the Bank of England’s target.

Fact-check date: August 19, 2026. Article type: News. Sources: Reuters; Office for National Statistics; Bank of England. Developing note: Bank of England guidance, market expectations and budget policy may change as officials respond to the July inflation report.