UK inflation accelerated in July from 2.6% to 2.9% after energy price ceilings were raised by 13%, while the Bank of England (BOE) forecasts inflation could reach 3.2% in the fourth quarter.
On August 19, 2026, at 1:48 PM, Bloomberg News reported that UK inflation accelerated in July after household energy costs rose , ending a brief period of easing cost-of-living pressures and increasing challenges for the Bank of England (BOE) in determining interest rate direction.
The UK's Office for National Statistics (ONS) revealed that the Consumer Price Index (CPI) for July rose by 2.9% year-on-year, accelerating from 2.6% in June, which was the lowest level in 15 months, and bringing inflation to its highest level since March.
The figure is in line with the median forecast of 2.9% by economists in a Bloomberg survey and slightly higher than the BOE's estimate of 2.8%.
A key factor is the 13% increase in the household energy price ceiling, leading to soaring energy costs, particularly gas prices which rose nearly 15% in July, the largest increase in four years.
However, falling fuel prices for vehicles and airfares helped alleviate some of the pressure, with average diesel prices falling by 8.8 pence per liter from June, while airfares decreased by 11.6% year-on-year.
Inflation in the services sector, a key measure of domestic price pressure that the Bank of England (BOE) focuses on, slowed to 3.4% from 3.6%, while core inflation, which excludes energy, food, alcohol, and tobacco, remained stable at 2.6%.
Following the data release, the pound remained strong, rising by about 0.1% to around $1.3550, as investors slightly lowered their expectations that the Bank of England would raise interest rates again by the end of the year.
The UK inflation outlook remains uncertain due to the conflict in the Middle East, as tensions have escalated and pushed Brent crude oil prices back above $90 per barrel.
British households are already feeling the effects of rising energy costs more clearly, as the energy price cap system has delayed the impact of the Iran-Iran conflict on consumers. Electricity and gas prices are likely to rise again in October, although the rate of increase may not be as high as the last.
Prime Minister Andy Burnham's government therefore prioritized the cost of living issue, implementing several measures such as limiting bus fares and reducing value-added tax on energy costs.
Food prices also helped alleviate the burden on households, with prices of food and non-alcoholic beverages increasing by only 1.3% in July, slowing from 1.7% in the previous month and the lowest level since September 2564. In particular, the prices of meat, vegetables, and sugar increased at a slower rate.
However, prices of some product categories, such as furniture and clothing, have increased as retailers reduced promotions and discounts.
The Bank of England (BOE) expects UK inflation to accelerate to a peak of 3.2% in the fourth quarter, which, while lower than initial forecasts at the start of the war, is still above the central bank's inflation target of 2%.
However, a cooling labor market may help limit the risk of energy costs being passed on to broader prices and wages, following recent data showing declining employment and slowing private sector wage growth.
The slowdown in services inflation may therefore support the BOE maintaining interest rates at 3.75%, as most economists predict. However, persistently high oil prices due to uncertainty in the Strait of Hormuz remain a significant risk to inflation prospects and the future direction of the UK's monetary policy.
Reference: www.bloomberg.com
Read news related to All European economic situations can be found here.
