British inflation rose to a four-month high of 2.9 percent in July as household energy bills increased sharply, according to official figures that matched economists’ forecasts.
The Office for National Statistics said annual consumer price inflation climbed from 2.6 percent in June, its lowest level in 15 months. The increase was largely linked to a 13 percent rise in the household energy price cap last month.
The figures come as the UK faces continued economic pressure from the conflict involving Iran and disruption around key energy routes. The impact of higher energy prices could keep inflation elevated in the months ahead.
Economists surveyed by Reuters had expected inflation to reach 2.9 percent. The Bank of England had forecast a slightly lower 2.8 percent increase and expects inflation to peak at around 3.2 percent later this year.
The latest figures are likely to provide some reassurance to policymakers because there were few major surprises. Data released a day earlier showed signs of a cooling labour market, which could limit the extent to which higher energy costs spread into broader prices.
The Bank of England remains mindful of the experience of 2022, when inflation climbed above 11 percent after Russia’s invasion of Ukraine sent energy prices soaring while a tight labour market added to wage pressures.
KPMG chief economist Yael Selfin said July could mark the beginning of a gradual increase in inflation but was unlikely to prompt an immediate response from the central bank.
She said weaker labour-market conditions were helping to prevent energy costs from spreading as widely through the economy as they had during the earlier inflation shock.
Core inflation, which excludes energy and food prices, remained at 2.6 percent in July, slightly above the 2.5 percent forecast in a Reuters poll.
Services inflation, closely monitored by the Bank of England, eased to 3.4 percent from 3.6 percent in June. Food and non-alcoholic drink inflation also slowed to 1.3 percent, the lowest level in almost two years.
The moderation in food prices suggests strong competition among supermarkets may be limiting the effect of higher energy and transport costs on consumers.
Finance Minister John Healey said the figures showed that the economic impact of the Iran conflict was being felt by households but added that the British economy remained resilient.
Separate ONS data showed factory-gate inflation slowed to 3.1 percent in July from 3.5 percent in June. Manufacturers’ input cost inflation also eased to 4.9 percent from 7.4 percent.
However, the improvement in producer costs could prove temporary. Brent crude prices have risen about 11 percent over the past two weeks as uncertainty surrounding the Middle East conflict and the Strait of Hormuz continues.
The inflation figures will remain important for Prime Minister Andy Burnham’s government as it prepares for an autumn budget while facing pressure to ease household costs without placing further strain on public finances.
