Why Your Energy Bills Are Going Up Again: UK Inflation Rises to 2.9%
Prices in the UK are going up faster again. Inflation — the rate at which the cost of everyday goods and services increases — rose to 2.9% in July 2026, up from 2.6% in June, according to the Office for National Statistics (ONS). This was the first increase since March, and it matched what economists had predicted. The main reason was gas and electricity prices. The ONS reported the biggest jump in UK gas prices since Russia invaded Ukraine in 2022. British households faced the sharpest summer rise in energy bills in four years, a direct result of the US-Israel war on Iran disrupting wholesale energy markets (The Guardian).
Before the Iran war started in late February 2026, inflation had been falling. It had peaked at 3.8% in 2025 and was dropping toward the Bank of England's 2% target. The conflict reversed that trend. The rest of the economy, though, is doing well: Britain grew faster than any other G7 country in the first half of 2026. But that growth now sits alongside rising energy prices, which makes things harder for both the Bank of England and the Treasury.
The Bank of England is now thinking about whether to raise interest rates — the price banks charge to lend money — possibly as soon as September 2026, according to The Guardian. Higher interest rates make borrowing more expensive, which can slow the economy down and reduce inflation. But the Bank is also looking at jobs data published by the ONS on August 18, 2026: wage growth slowed in June 2026 and job vacancies fell to a five-year low. When jobs are harder to find, workers have less power to ask for pay rises, which helps keep inflation in check. Ruth Gregory, an economist at Capital Economics, predicted that inflation would fall back to 2% in 2027, arguing that a weak jobs market would stop the energy price rise from spreading into a cycle of higher wages and higher prices.
There was also a sign that some cost pressures might be easing. The prices that UK manufacturers pay for their materials and fuel rose by 4.9% in the year to July 2026, down from 7.4% in the year to June (ONS). That slowdown suggests some of the cost pressure from the early phase of the Iran conflict may be easing, though it is still well above where it was in early 2026.
The government is also feeling the squeeze. Chancellor John Healey is preparing for a difficult budget in October, because rising inflation and higher borrowing costs make it harder to fund Prime Minister Andy Burnham's plans. Burnham has already said he will cut VAT — a tax added to the price of most goods and services — on electricity bills. That should save the average household about £45 a year on electricity from October 2026 (The Guardian). But that tax cut also means less money for the government to spend on other things, at a time when the cost of paying off national debt is rising alongside interest rates.
The ONS also looked at the government's Great British Summer Savings scheme, which launched on 25 June 2026 after being announced on 21 May. The scheme probably helped bring down prices for things like cinema tickets, cultural events, and visits to historic monuments. But the ONS concluded that it did not have a meaningful impact on overall inflation. The energy price rise was simply too large to be offset by cheaper leisure activities.
The way inflation is measured is also changing. Since February 2026, the ONS has been using scanner data — the price information collected when you scan items at the supermarket checkout — covering about 50% of the UK grocery market. This replaced around 25,000 prices that people used to collect by hand each month with about 300 million price points from over a billion products sold. A test comparison found that this new method only changed the inflation figure slightly, by about 0.1 percentage points. The same change was later applied to other inflation measures the ONS publishes.
The bigger picture is a clash between a war happening far away and a UK economy that had been getting back on track. The Iran war pushed up energy prices just as the Bank of England was getting ready to bring interest rates back to normal levels and the Burnham government was looking for room to fund its plans. The real question is whether inflation will settle down on its own, as Gregory predicts, or whether the Bank of England's worry that high energy prices could become a lasting problem proves right. The interest rate decision in September will depend on which view the Bank's rate-setting committee finds more convincing.
