Inflation in Britain accelerates again due to surge in energy prices

Inflation in the United Kingdom accelerated again: in July, consumer prices rose by 2.9% year-on-year after 2.6% in June. The main factor was higher household energy costs.

New data was released on 19 August by the Office for National Statistics.

The July figure met economists' expectations, but moved inflation further away from the Bank of England's 2% target. In June, the pace of price growth, on the contrary, decreased from 2.8% to 2.6%.

Energy became the main source of price growth

The largest contribution to the acceleration of inflation came from housing and utility costs. Gas prices rose particularly noticeably - after the change in regulated tariffs for British households.

From 1 July, energy regulator Ofgem raised the energy price cap by 13%. For a typical household paying for gas and electricity by direct debit, the estimated annual bill increased by £221 - to £1,862.

The regulator explained this by the rise in wholesale gas prices due to the conflict in the Middle East. More expensive energy is gradually passing into household bills and broader consumer prices.

In July, inflation was also pushed up by prices for furniture and household goods. At the same time, transport costs partially offset this effect.

Core inflation, which excludes energy and food, stood at 2.6%. Services inflation slowed to 3.4%, and food inflation - to 1.3%.

Bank of England does not change rates for now

The acceleration of inflation occurs against the backdrop of the Bank of England's cautious policy. At the end of July, the regulator kept the key rate at 3.75%. Six out of nine members of the committee voted to keep the rate, three more advocated raising it to 4%.

The Bank of England warned that the energy shock has not yet been fully reflected in consumer prices. According to the regulator's latest forecast, inflation could rise to around 3.2% at the end of 2026, and then gradually weaken.

The further trajectory of rates will depend on how long energy prices remain high and whether they begin to have a stronger impact on wages and prices in other sectors of the economy.

Kurs Ukraine previously reported that the Bank of England had already warned about the risk of new inflationary pressure due to higher energy prices.

Based on materials from: Office for National Statistics, Ofgem, Bank of England