Cost of living crisis: Economists warn 'inflation expected to rise' after shock energy bill hike

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The consumer price index (CPI) inflation rate will be confirmed later next year, which will provide more insight into the ongoing cost of living crisis

Britain's cost of living crisis is expected to be prolonged even further as soaring energy bills will likely push up inflation, analysts warn.

Official inflation figures due out on Wednesday are widely expected to show a sharp jump in the consumer prices index to 2.9 per cent for July, marking the highest level since March and a significant leap from June's 15-month low of 2.6 per cent.

The anticipated rise is largely driven by Ofgem's 13 per cent increase to the energy price cap last month, which pushed typical annual household gas and electricity bills up by £221 to £1,862.

According to Investec economist Ellie Henderson, that single measure will contribute an additional 0.5 percentage points to the inflation reading.

She said: "It was already clear at the publication of the June print that any easing in inflationary pressures as per the headline measure wouldn't last for long, with the July increase to the Ofgem energy price cap likely to erase any progress towards the Bank of England's two per cent target."

The conflict in Iran threatens to push energy prices higher still during the winter months, with effective gridlock in the Strait of Hormuz constraining global supply routes.

Victoria Scholar, head of investment at Interactive Investor, expects the situation to worsen before it improves, with inflation set to breach three per cent later this year.

Ms Scholar shared: "Inflation is expected to continue to rise, peaking above three per cent later this year, as the UK economy continues to grapple with the backdrop of elevated energy prices and the effective gridlock in the Strait of Hormuz."

The combination of geopolitical disruption and rising wholesale costs presents a bleak outlook for British households heading into the colder months.

Soaring temperatures and prolonged droughts across both the UK and Europe are also raising alarm bells over food costs.

The Food and Drink Federation warned earlier this week that "fruit, vegetable and grain supply" are being severely affected by the recent record heatwaves.

Crop shortages resulting from the extreme weather are expected to filter through to supermarket shelves in the coming months.

Ms Scholar believes the Bank of England may be compelled to raise interest rates by 25 basis points before the year is out, taking the base rate from 3.75 per cent to four per cent in an effort to steer inflation back towards its two per cent target.

She said: "The Bank of England is likely to carry out roughly one 25 basis point hike by the end of the year as it looks to temper the risk of overheating and help push the inflation rate back in the direction of the central bank's two per cent target."

Wednesday's Retail Prices Index figure will also attract attention, as the July reading determines next year's rail fare increase.

Former Chancelllor Rachel Reeves froze fares in England for 2026, the first such freeze in three decades, though it remains uncertain whether ministers will repeat the measure.