UK consumer price inflation accelerated to 2.9% year-on-year in July, up from 2.6% in June and the highest reading since March, according to the Office for National Statistics. The increase matched economists' expectations and was driven mainly by a sharp rise in household energy costs after Ofgem lifted its energy price cap by 13% from 1 July.
Ofgem's typical annual dual-fuel bill rose to £1,862 from £1,641 under the previous benchmark. Within that increase, gas bills climbed about 24% while electricity costs rose around 5%, reflecting higher wholesale gas prices linked to the Middle East conflict. The ONS said July's cap was the first to fully incorporate wholesale prices affected by the conflict.
The Bank of England kept its policy rate at 3.75% in July, but the decision was split 6-3, with three policymakers voting for an increase to 4%. The central bank has warned that inflation is likely to move above 3% later this year, and the July CPI data keeps the possibility of further tightening in play. However, labour market data released Tuesday complicates the rate outlook: unemployment was 4.9%, vacancies fell to 707,000, and private-sector regular pay growth slowed to 2.8%, its weakest since 2020.
Underlying price measures were more mixed. Core CPI held at 2.6%, services inflation eased to 3.4% from 3.6%, and food inflation slowed to 1.3%, the lowest since September 2021. Petrol and diesel prices also fell. Still, Cornwall Insight forecasts another 4% increase in the energy cap in October, potentially lifting the typical bill to around £1,941. The Bank expects CPI inflation to reach about 3.2% in October and November, with its next rate decision due on September 17.
The persistent inflation and possible hawkish repricing create a more difficult macro backdrop for risk assets, including cryptocurrency markets, by sustaining tighter financial conditions for longer.
