UK inflation rose to 2.9 percent in July from 2.6 percent in June, driven largely by higher household energy bills and rising prices across a range of services, according to figures from the Office for National Statistics.
The increase was in line with economists’ expectations and came after the household energy price cap rose by 13 percent last month. The ONS described the rise in gas prices as the largest increase in almost four years.
Energy costs have remained under pressure amid continuing conflict in the Middle East and uncertainty surrounding major oil and gas shipping routes. Analysts said the situation could keep pressure on household finances for much of the rest of the year.
Jonathan Raymond, investment manager at Quilter Cheviot, said the latest increase had been expected but warned that conditions around the Strait of Hormuz remained unsettled.
He said inflation could ease in coming months as government measures begin to affect the headline figures, including reductions in VAT on energy bills and discounts in leisure and hospitality. However, he said those measures may not reduce inflation quickly enough for the Bank of England to consider cutting interest rates.
Services inflation was a major contributor to July’s increase. Private rents rose 4.1 percent year on year, up from 3.4 percent in June.
Internet services prices increased by 12.1 percent, while car insurance costs rose 8.4 percent. Mobile phone services also became 9 percent more expensive.
Other service costs increased during the month, including care home fees, dental treatment, education, childcare and sports activities.
Sarah Coles, head of personal finance at AJ Bell, said many service businesses employ large numbers of workers on or near the minimum wage. Higher staffing costs, combined with increased employer National Insurance contributions, have placed pressure on companies to raise prices.
She also pointed to higher rents, saying increased mortgage costs and tighter rules affecting landlords were contributing to higher housing costs for tenants.
Childcare prices have also been affected by rising demand and staffing costs. Coles said government funding does not always cover the full cost of funded childcare places, leaving families to absorb part of the increase.
There was some relief from food prices. Annual food inflation slowed to 1.3 percent, with prices falling for products including pizza, quiche, butter, jam and honey.
Prices of several non-food goods also declined, including shoes, men’s clothing, garden furniture and televisions.
The latest inflation figures present a difficult environment for the UK government as it seeks to reduce pressure on household finances.
Prime Minister Andy Burnham has outlined measures including proposed tax reductions on household electricity costs and bus fare caps as part of efforts to ease living expenses.
With energy prices, rents and other services continuing to rise, policymakers face pressure to bring inflation down while supporting households already dealing with higher everyday costs.
