UK inflation expected to rise as higher energy costs put pressure on households

Monday 17 August 2026 - 11:25

By: Azzat Manal

UK inflation expected to rise as higher energy costs put pressure on households

British households are facing renewed financial pressure as higher energy costs are expected to push inflation sharply higher in July, according to economists' forecasts.

Official figures due to be released this week are expected to show consumer price inflation rising to around 2.9% in July, up from 2.6% in June. The increase would come after a significant rise in household energy costs introduced at the beginning of the month.

Energy regulator Ofgem increased its price cap for household gas and electricity by 13% in July. Economists estimate that the increase could add approximately 0.44 percentage points to the annual inflation rate, although lower petrol and diesel prices may partly offset the impact.

The expected rise has renewed concerns about the cost of living and could complicate the Bank of England's decisions on interest rates. Higher inflation generally makes it more difficult for policymakers to reduce borrowing costs, particularly when price pressures remain above the central bank's target.

Energy markets have also been affected by geopolitical tensions and instability in the Middle East. Fluctuations in oil and gas prices could create additional inflationary pressure if energy costs remain elevated for an extended period.

Despite these challenges, the British economy has shown signs of resilience. Economic growth during the first half of 2026 was reportedly stronger than expected, while inflation had previously fallen from a peak of around 3.8% recorded the previous year.

The government is meanwhile under pressure to reduce the financial burden on households and businesses ahead of a potentially difficult autumn budget. Measures include a planned reduction in value-added tax on electricity, which is expected to save an average household around £45 a year from October, as well as continued support for bus transport costs in England.

The Bank of England kept interest rates unchanged at its latest meeting but has warned that a worsening geopolitical situation could generate additional inflationary pressures. Markets are therefore closely watching upcoming economic data for indications of how the central bank might respond.

If inflation continues to move higher, policymakers could face a difficult balance between controlling price growth and supporting economic activity. For households, the immediate concern remains whether rising energy bills will translate into another period of pressure on disposable incomes.