UK inflation forecast to rise on energy bill hikes

UK inflation is forecast to have accelerated sharply in July, driven by a significant increase in household energy bills, with official figures expected to show the Consumer Prices Index rising to 2.9% from June's 15-month low of 2.6%. The data, scheduled for release on Wednesday, will likely mark the highest inflation rate since March and underscore the persistence of price pressures well above the Bank of England's 2% target.

The immediate cause of the anticipated jump is a 13% increase in Ofgem's energy price cap that took effect in July. This regulatory change lifted the typical annual household gas and electricity bill by £221 to £1,862. Economists estimate this single factor will add approximately 0.5 percentage points to July's headline inflation figure. "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," said Ellie Henderson, an economist at Investec.

Beyond the immediate energy shock, the outlook is clouded by emerging pressures. The conflict in...