Must read: UK inflation rises to 2.9% in July
ii’s head of investment rounds up the morning’s big news.
19th August 2026 08:55
by Victoria Scholar from interactive investor
According to the Office for National Statistics (ONS), as expected UK inflation hit 2.9% in the 12 months to July up from 2.6% in June.
Higher gas prices within housing and household services were responsible for the notable rise, which increased by 14.7% driven by the July hike in Ofgem’s energy price cap. Gas prices hit the highest level since March 2024. Furniture and household goods also had an upward effect as well as clothing and footwear amid lower discounts this year versus last July. This was offset by transport inflation, which slowed in July as well as restaurants and hotels.
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Looking ahead, there appears to be no let up for this year’s commodity-driven inflation comeback with Brent crude trading back above $91 a barrel after the US-Iran ceasefire ended this week. Higher energy costs mean inflation is expected to stay above target for some time, possibly peaking above 3% in the final quarter of this year.
However, the data is yet to suggest an entrenched inflationary problem as the labour market continues to show signs of weakness with sluggish private sector wage growth and a general cautiousness around hiring among businesses, which helps to limit second-round inflationary effects. Inflation watchers will be keeping a close eye on developments in the Middle East and underlying oil and gas prices as well as the potential for food supply chain disruptions because of this summer’s heatwave.
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The Bank of England will be hoping to refrain from raising interest rates this year, with the market probability of a hike in 2026 falling after the data to below 20%. This is because of improved readings under the bonnet including services inflation, which cooled to 3.4% from 3.6% and food inflation which fell to 1.3% from 1.7%.
Today’s data, at least optically, is challenging for Andy Burnham’s new government which has underscored tackling the cost of living as one of its immediate priorities. Having said that, some of his policies such as reducing VAT on household energy bills are yet to come into effect.
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