UK Faces Renewed Cost of Living Squeeze as Energy Bills Rise
Official figures are expected to show UK inflation rising to 2.9% in July, driven by increased energy costs linked to the ongoing Iran conflict.
By The Guardian
British households are bracing for a renewed cost of living squeeze, with official figures anticipated to reveal that inflation rose to 2.9% in July, up from 2.6% in June. This increase is largely attributed to a 13% rise in the energy price cap implemented by Ofgem at the start of July, which has led to higher gas and electricity bills.
Economists predict that the turmoil in global energy markets, exacerbated by the ongoing conflict in Iran, is contributing to this inflationary pressure. The Office for National Statistics (ONS) is set to publish the latest inflation figures this week, which are expected to reflect these developments.
Thomas Pugh, chief economist at RSM UK, noted that the increase in energy prices would add approximately 0.44 percentage points to the headline inflation rate. He also mentioned that while rising energy costs are a concern, a decrease in petrol and diesel prices may partially offset this inflationary impact.
The Bank of England is considering raising interest rates as early as September in response to these inflationary pressures. Additionally, there are discussions around potential “surge pricing” for water usage during droughts, which could further strain household budgets.
The Bank of England has projected that inflation could reach 3.2% by the end of the year, despite measures aimed at mitigating the impact of rising costs. The Bank has warned that further escalation in the Middle East could drive inflation even higher, potentially peaking at 4.5% by mid-2027.