UK inflation rose to 2.9% in July as higher energy prices added fresh pressure to household budgets.
The annual inflation rate increased from 2.6% in June, according to the Office for National Statistics. The rise matched forecasts from City economists.
It was the first increase in the annual inflation rate since March. Higher gas and electricity prices were the main reason for the rise.
The increase came after a sharp rise in the UK energy price cap at the start of July. Energy bills rose by 13% as global energy markets faced major pressure from the conflict involving Iran.
The higher bills added to the cost pressures already facing families across Britain. Many households had hoped that falling inflation would bring more relief after a long period of rising prices.
The latest data show that the path back to lower inflation may be uneven. Energy costs can change quickly when global markets face supply risks or major political events.
The ONS said gas prices recorded their biggest annual increase since Russia’s invasion of Ukraine in 2022. Other parts of the economy also added to the July inflation figure.
Furniture prices fell less than they normally do at this time of year. Clothing prices also fell by less than usual as retailers offered fewer discounts.
At the same time, some factory and raw material costs eased. Crude oil and refined fuel prices fell during July, helping to reduce some pressure on producers.
The latest figures will be closely watched by the Bank of England. Policymakers are considering how long interest rates may need to stay high as they try to keep inflation under control.
The central bank kept interest rates unchanged last month. It warned that a major escalation in the Middle East conflict could push UK inflation as high as 4.5% by the middle of 2027.
However, economists said the latest rise may not lead to a long period of high inflation. A weaker UK jobs market could help limit further price increases.
Separate figures released on Tuesday showed that wage growth slowed in June. The number of job vacancies also fell to its lowest level in five years.
A weaker labour market can reduce pressure on companies to raise wages. This may help limit wider price increases across the economy.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the latest energy shock may not last. She expects inflation to return to about 2% next year if energy prices remain stable.
The latest data also showed that core inflation remained at 2.6%. Core inflation leaves out some changeable prices, such as energy and food.
Services inflation fell from 3.6% to 3.4%. The figure suggests that some underlying price pressure is easing.
The government is under pressure to help households manage the higher cost of living. Prime Minister Andy Burnham has already announced measures aimed at giving families more financial breathing space.
One plan would cut VAT on electricity bills. The government expects the move to reduce average household electricity costs by about £45 a year from October.
Chancellor John Healey said the UK economy remained resilient despite higher prices linked to the Iran conflict. He said the government wanted to build an economy where growth was shared more widely.
The latest figures come after a stronger-than-expected first half for the UK economy. Official data showed Britain recorded the fastest economic growth among G7 nations during the first six months of the year.
Inflation had also been moving lower before the Middle East conflict changed the outlook. The annual rate had fallen from a peak of 3.8% last year and was expected to move closer to the Bank of England’s 2% target.
The new rise shows the risk from higher energy prices. Global events can quickly affect household bills and make the fight against inflation harder.
For now, falling services inflation and slower wage growth offer some relief. But higher energy costs remain a key risk for British households and policymakers in the months ahead.
