UK inflation has increased to 2.9% in the 12 months to July, the highest rate for four months, the Office for National Statistics (ONS) reveals.
The latest figure shows inflation has risen from 2.6% for the year to June.
The data shows housing and household services, and furniture made the largest upward contributions to the monthly change, while transport made the largest, partially offsetting, downward contribution.
It comes after the Bank of England held its interest rate at 3.75% in its July meeting.
Even though inflation had fallen by more than expected to 2.6% in June, the MPC said it believed it would rise again because of energy prices and the knock-on impact on businesses.
Commenting on the latest inflation data, LSL Financial Services chief distribution officer Emma Hollingworth says: “Fresh trouble in the Middle East has stoked fears of another bout of inflation, particularly if the Strait of Hormuz, a key artery in the global trade network, remains under threat. For borrowers, what happens to that shipping lane could have major ramifications for the cost of borrowing this year.”
“Against that backdrop, the Bank of England is walking a tightrope again. Some forecasters now see inflation topping 4% by this time next year, which would likely force the Bank’s hand on interest rates.”
“While we don’t expect the Monetary Policy Committee (MPC) to move at next month’s meeting, the chances of at least one rise – and perhaps two – this year have grown dramatically.”
“Swap rates have jumped since the US-Iran ceasefire fell apart in early July and, if inflation keeps rising, they will climb further. That matters enormously for the hundreds of thousands of borrowers refinancing in the second half of 2026.”
“A few weeks ago, we thought we finally had some certainty but with conflict flaring again in the Middle East, we are back to square one.”
Spicerhaart and Just Mortgages chief executive John Phillips adds: “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.”
