Soaring energy prices see inflation rise to highest level since March

Inflation rose to 2.9% in July amid higher energy prices and fears the summer’s heatwave could start putting pressure on food costs.

In figures announced today, Consumer Prices Index (CPI) inflation has risen to 2.9% per cent in July, up from a 15-month low of 2.6 per cent in June.

The rise in inflation follows the 13 per cent hike in Ofgem’s energy price cap last month , which saw the average gas and electricity bill increase by £221 to £1,862 a year.

That hike in energy bills has contributed significantly to the rise, as shown by core inflation - which strips out energy and food costs - remaining locked at 2.6 per cent, unchanged from June. But with no end in sight to Donald Trump’s war on Iran, households can expect to continue to feel the squeeze.

The government’s Great British Summer Savings Scheme, which cuts prices on family attractions and children’s meals thanks to a VAT reduction until September, may have helped mediate rising inflation – but not enough to prevent it moving further away from the Bank of England’s 2 per cent target.

There are also concerns over food inflation, with producers warning earlier this week that soaring temperatures and droughts across the UK and Europe are set to drive prices higher.

ONS deputy director for prices Mike Hardie said: “Inflation rose in July, driven by a sharp increase in gas prices following this month’s change to the energy price cap. This was the largest rise in gas prices for almost four years.

“Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting.

“The prices of raw materials and goods leaving factories slowed again, driven by a drop in the prices of crude oil and refined petroleum respectively.”

In response to the figures, The Food and Drink Federation said “fruit, vegetable and grain supply” are being hit by recent heatwaves, with crop shortages set to feed in to supermarket prices.

Economists from the trade group suggested that this will put upward pressure on food inflation going into 2027.

Kevin Brown, savings expert at Scottish Friendly, cautioned households that more could be yet to come when it comes to their grocery shopping.

“Energy may only be exerting part of the pinch this autumn. Expensive fuel and fertiliser are adding pressure to food production and supply chains, while an exceptionally hot summer raises another threat to harvests,” he said. “As a result, families may continue to feel the inflationary fallout from this at the till as well as through their utility bills.”

Jonathan Raymond, investment manager at Quilter Cheviot, similarly noted the expectation remains that wider inflation figures remain elevated across the board until this year.