Official figures due on Wednesday are expected to show that UK inflation climbed to close to 3% in July 2026, driven largely by a sharp rise in household energy bills. Economists forecast that the headline consumer prices index will reach 2.9%, up from 2.6% in June, as the fallout from the war on Iran continues to ripple through global energy markets.
The anticipated increase comes just weeks after Ofgem, the energy regulator, raised its price cap on household gas and electricity bills by 13% from 1 July 2026. According to Ofgem's own official announcement, the new cap sets annual bills for a typical dual-fuel direct-debit household at £1,862, up from £1,641 in the previous quarter and 6% higher than the same period in 2025 once adjusted for real terms. The regulator has attributed the rise directly to higher global energy prices linked to the conflict.
For customers on direct debit, Ofgem's published rates for July to September 2026 stand at 26.11p per kWh for electricity and 7.33p per kWh for gas, with standing charges of 57.19p a day and 29.04p a day respectively, according to figures on the regulator's consumer advice pages. The consumer group Which? estimates this works out at roughly £139 a month for a medium-use household, based on its own analysis of the same price-cap period.
Why are energy bills rising again?
The increase follows warnings earlier this year that sustained high oil prices would make higher household bills unavoidable. Households were separately urged to submit meter readings ahead of the 13% price rise to avoid being overcharged, with experts cautioning that costs could stay elevated well into winter given ongoing geopolitical tensions. Centrica's chief executive had also flagged the risk of rising bills if oil prices remained high, pointing to the Iran conflict as the key driver.
Thomas Pugh, chief economist at the accountancy firm RSM UK, said the higher energy price cap alone would add about 0.44 percentage points to headline inflation, an effect only partly offset by falling petrol and diesel prices.
"The cost of living squeeze is set to return to the headlines," he said. "[Higher inflation is] adding fresh pressure to household budgets and complicating the outlook for interest rates."
How is this affecting the wider economy?
The renewed inflationary pressure arrives despite otherwise encouraging signs for the UK economy, which grew in the first half of 2026 at the fastest pace in the G7. Inflation had also been easing from a peak of 3.8% last year and was on track to approach the Bank of England's 2% target before the Iran war disrupted that trajectory. Notably, inflation had briefly held steady at 2.8% in May, defying earlier forecasts of a 3% reading, before the latest energy price rise reversed that calm.
The housing market has also felt the strain, with UK house prices remaining flat in June amid rising mortgage rates and energy costs, though regional variation persisted, including stronger growth in Northern Ireland. Separately, the labour market is showing signs of change: an August 2026 report from KPMG and the Recruitment and Employment Confederation found that starting salary inflation reached its highest level in six months, while temporary staff wage growth hit a 26-month high, according to the KPMG and REC report on jobs. Separate wage figures due on Tuesday are expected to confirm a continued slowdown in overall pay growth.
What are economists and policymakers saying?
The Bank of England is weighing an interest rate rise as early as September in response to concerns that elevated inflation could become entrenched. City investors are pricing in two quarter-point rate increases before the end of next year, with financial markets assigning almost a one-in-four chance of the first move coming at the Bank's next policy meeting, from a current base rate of 3.75%. The Bank forecasts that inflation will reach 3.2% by the end of the year despite government efforts to soften the impact on households, and has previously warned that a worst-case escalation of the Middle East conflict could push inflation as high as 4.5% by mid-2027.
Victoria Scholar, head of investment at the financial platform Interactive Investor, said the outlook remained challenging.
"Inflation is expected to continue to rise, peaking above 3% later this year, as the UK economy continues to grapple with the backdrop of elevated energy prices and the effective gridlock in the strait of Hormuz."
"The Bank is likely to carry out roughly one 25 basis point hike by the end of the year as it looks to temper the risk of overheating and help push the inflation rate back in the direction of [its] 2% target."
Prime Minister Andy Burnham used his first week in office to unveil a package of "breathing space" measures aimed at easing living costs, including support intended to cut average consumer electricity bills by £45 a year from October, alongside a £2 cap on bus fares in England. The Bank of England has estimated these measures, taken together, could reduce headline inflation by around 0.1 percentage point.
What happens next?
Ofgem is due to announce its next quarterly price cap on or before 26 August 2026, according to guidance published by the energy comparison service Uswitch, which will determine whether household bills rise further or begin to ease heading into winter. The next official inflation reading, covering August 2026, is scheduled for release by the Office for National Statistics on 16 September 2026, according to the ONS release calendar, and will show whether the anticipated jump in inflation this week proves to be a temporary spike or the start of a more sustained upward trend.
Key Facts
- UK inflation is forecast to rise to 2.9% in July 2026, up from 2.6% in June, according to figures due Wednesday.
- Ofgem's energy price cap rose 13% from 1 July 2026, taking a typical dual-fuel direct-debit bill to £1,862 a year.
- The Bank of England may raise interest rates as early as September, from a current base rate of 3.75%.
- The Bank forecasts inflation could reach 3.2% by year-end, or as high as 4.5% by mid-2027 in a worst-case scenario.
- Ofgem's next price cap announcement is due on or before 26 August 2026, ahead of the next inflation reading on 16 September 2026.
