Inflation hits 2.9% – industry reaction

UK inflation hit 2.9 per cent in July, up from 2.6 per cent in June, according to the latest data from the Office for National Statistics (ONS). This was the first rise in the annual rate of inflation since March. The increase was mainly driven by an increase in the energy price cap.

Commenting on the inflation figures for July, ONS Deputy Director for Prices Mike Hardie said “Inflation rose in July, driven by a sharp increase in gas prices following this month’s change to the energy price cap. This was the largest rise in gas prices for almost four years.

“Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting.

“The prices of raw materials and goods leaving factories slowed again, driven by a drop in the prices of crude oil and refined petroleum respectively.”

Neil Kadagathur, CEO at Creditspring, said “With today’s inflation figures showing a rise to 2.9%, this could mark the beginning of renewed pressure on household finances. The Bank of England has warned that inflation could be higher later in 2026 as energy-price pressures feed through the economy, and recent geopolitical developments have increased that risk.”

“The ongoing conflict in the Middle East is continuing to push up motor fuel prices, putting fresh pressure on the headline rate. While underlying inflation has improved across a range of goods and services, and food price pressures have eased, higher fuel costs risk offsetting some of that progress.

“For families, even a small rise in inflation keeps the cost of everyday life moving in the wrong direction. Prices remain far higher than they were a few years ago, and households are still feeling that pressure at the petrol pump, in the supermarket and through their household bills.

“With inflation expected to keep edging up, now is a good time for households to take stock of their finances. Reviewing regular outgoings, setting aside what they can for predictable costs and speaking to providers early if repayments are becoming difficult can all help people stay in control. The focus should be on keeping budgets realistic and manageable before financial pressure builds into a bigger problem.”

John Phillips, CEO of Just Mortgages and Spicerhaart, said “Inflation rising in July was widely expected following the increase in the Ofgem energy price cap in July. This is where the stop start Middle East conflict has had the most profound impact on the UK, which has otherwise seemed to fair reasonably well so far – as shown by recent resilient GDP data. Energy is expected to be a key driver of inflation in the back end of this year, as well as rising food costs as we see the impact of this persistent hot weather.

“While it is easy to get bogged down in this macro view, it’s important that we don’t miss the moves taking place in the mortgage market – most notably rate cuts from the likes of Nationwide, Santander, HSBC and Gen H this week. There’s an argument to say more could be on the way as long-winded transaction times force lenders to think ahead to their end of year lending targets. So while it is important for us to be aware of the forces influencing our market, we shouldn’t let it dictate our conversations with potential clients – especially when there is still an ambition to buy. In reality, many consumers just don’t know that they can and it’s up to us, now more than ever, to be proactive and present opportunities to those potential borrowers who have the appetite and perhaps unknowingly have the ability too.”

James Smith, Chief Economist at the Resolution Foundation, said “Inflation is back on the rise, climbing to 2.9 per cent in July largely due to higher energy bills. With more increases to come – this is unwelcome news for families, mortgagors and the Government alike.

“The good news is that underlying pressures are still easing, with services inflation continuing to fall. The bad news is that this fresh bout of inflation is being driven by events in the Middle East that are largely beyond the Government’s control.

“At today’s energy prices the Government should not be looking to provide large-scale blanket support, but it should be ready with targeted support if bills climb further this autumn.”

Caterina Batog, Research and Economics Analyst at the British Chambers of Commerce said “Firms continued to feel the heat from inflation last month, with CPI rising to 2.9%, further fuelling the cost of doing business crisis.

“Higher household energy bills fuelled by the Middle East crisis played a significant part in July’s CPI rise, and as the Bank of England has warned, energy is likely to push up inflation further in the coming months. Energy remains a major issue for businesses, who aren’t subject to a price cap.

“For the firms we represent inflation is the number one concern. Our latest survey shows 66% of firms cited it as a worry in Q2.

“The cost pressures facing businesses are made abundantly clear in our cost-stack model launched earlier this month. Margins are being squeezed hitting investment and recruitment.

“The government must use the Budget as an opportunity to back business, cut costs and deliver growth.  The Chancellor needs to give firms the breathing space they desperately need by outlining ambitious measures to drive forward trade, investment and productivity.”

Suren Thiru, ICAEW Chief Economist, said “The financial squeeze on households and businesses is intensifying once more, with July’s energy-led reacceleration in inflation, driven by Ofgem’s price cap increase, underscoring how elusive price stability remains.

“July’s uptick is unlikely to be a one-off, with drought-related increases in food prices and surging energy costs raising the prospect of inflation topping 3.5% later this year, especially if disruption in the Strait of Hormuz persists.

“Rising inflation is likely to become the biggest threat to UK growth in the coming months as it eats into household budgets by increasing the cost of essentials, while also raising government borrowing costs and eroding the Chancellor’s fiscal headroom ahead of October’s Budget.

“Softer services inflation is unlikely to reassure the Bank of England as it appears to reflect the temporary VAT cut on family attractions and children’s meals, rather than a genuine cooling in underlying price pressures.

“While July’s hotter inflation reading is unlikely to trigger a September rate rise, given the dampening effect of a softer labour market on underlying price pressures, it does reignite the prospect of further policy tightening before the end of the year.”