UK inflation climbs to 2.9% in July as the Ofgem price cap rise feeds through to household bills

UK inflation rose to 2.9% in the 12 months to July, up from 2.6% in June, according to figures published by the Office for National Statistics on 19 August. It is the second consecutive monthly increase, and the cause is not especially mysterious: Ofgem lifted its cap on household gas and electricity prices by 13% on 1 July, and that increase has now landed in the index.

The broader CPIH measure, which includes owner occupiers' housing costs, rose to 3.1% from 2.8%. Prices rose 0.3% over the month itself. The ONS identified housing and household services — gas and electricity in particular — as the largest upward contribution between June and July, partly offset by transport, where motor fuel prices fell.

At a glance

• CPI rose 2.9% in the 12 months to July 2026, up from 2.6% in June
• CPIH rose 3.1%, up from 2.8%
• Core CPI held steady at 2.6%
• Services inflation eased to 3.4% from 3.6%; goods inflation rose to 2.2% from 1.7%
• Prices rose 0.3% on the month
• Ofgem's price cap went up 13% on 1 July

What is actually driving the number

The headline rate is doing something specific rather than something general. Core CPI, which strips out energy, food, alcohol and tobacco, was unchanged at 2.6%. If the underlying pressure in the economy were broadening, that is the figure that would be moving, and it did not move.

Services inflation, the measure the Bank of England watches most closely because it tracks domestic wage pressure rather than imported costs, actually eased to 3.4% from 3.6%. Goods inflation went the other way, up to 2.2% from 1.7%. That combination — services cooling, goods warming, core flat — is the signature of an energy shock passing through, not of demand overheating.

Why the price cap matters so much

Ofgem's cap does not limit what a household pays in total; it limits the unit rates and standing charges a supplier can levy on a standard variable tariff. Because a large share of British households sit on those tariffs, a cap change lands almost simultaneously across the country, and it lands in a single month rather than being smeared across a quarter.

That makes energy an unusually blunt instrument inside the UK inflation basket. A 13% increase to the regulated rate does not spread itself gently; it produces exactly the kind of step change visible in July's data. The corollary is that the same mechanism works in reverse — if the cap falls, the headline rate can drop sharply without anything else changing.

What it means for households

For anyone paying a bill, the distinction between core and headline inflation is academic. Energy is not discretionary spending, and a 13% increase in the regulated rate cannot be shopped around in the way a grocery bill can. Households on prepayment meters and those with poorly insulated homes absorb the increase most directly.

The mild consolation in the detail is that motor fuel prices fell, which took something off the headline rate. For households that drive a lot and heat a little, July may have been closer to neutral than the 2.9% figure suggests. For everyone else it will not have felt neutral at all.

The Bank of England's problem

The Monetary Policy Committee meets on 17 September, and July's data hands it an awkward set of signals. Headline inflation is moving away from the 2% target, which argues against cutting. But the movement is concentrated in a regulated energy price that interest rates cannot influence, while the measures rates can influence — core and services — are flat or falling.

Raising rates to offset an administered price increase would tighten conditions in the parts of the economy that are already behaving. Ignoring the headline risks letting a temporary increase feed into wage expectations. The committee has navigated this trade-off before; the question is whether it treats July as noise around a disinflating trend or as evidence that the last stretch to target is going to be slow.

What happens next

The August figures, due in September, will show whether the price cap increase was a one-off step or the start of a run. Because inflation is measured year on year, a single step up stays in the index for twelve months before dropping out, which means the headline rate is likely to sit above where core inflation would put it for the rest of 2026.

The wider variable is wholesale energy, which has been unusually unsettled this year. If wholesale prices ease before Ofgem's next cap review, the mechanism that pushed July's figure up will start pulling it back down. If they do not, the Bank will be making its September decision against a headline rate that is drifting in the wrong direction for reasons that have very little to do with monetary policy.