ByFaarea Masud

Business reporter

Higher energy bills drove UK inflation up to 2.9% in the year to July, the highest level in four months, according to new figures.

Gas prices soared at the sharpest pace in almost four years, the Office for National Statistics (ONS) said, leading to an increase in the cap on household energy bills in July. Energy costs surged after US-Israel war with Iran began, which has restricted global oil supplies.

July's reading is the highest since March but some price growth slowed. Food inflation, at 1.3%, is at its lowest rate for close to five years.

Experts said the inflation figure is unlikely to influence the Bank of England to change its key interest rate at its next meeting in September.

Energy costs for households rose on 1 July after Ofgem, the energy regulator, increased the price cap on gas and electricity costs by 13%, which added £221 a year to the typical bill.

Homes are forecast to see a 4% rise in energy bills from October, according to Cornwall Insight, which would take them to the highest level since July 2023.

There is ongoing uncertainty over the US-Iran conflict, which has seen effective closures of the Strait of Hormuz, a key trading passage for ships carrying oil, liquefied natural gas and other commodities.

Cornwall Insight, an independent energy consultancy, added that energy price pressures were being compounded by the ongoing heatwave across Europe "increasing gas demand for power generation to meeting air conditioning and cooling demand".

ONS prices director Mike Hardie said furniture prices, which fell by less than usual for that time of year, added to the upward pressure on inflation.

He said clothing had not been discounted as much.

Chancellor John Healey said the Iran war was continuing to affect prices in the UK, but insisted Britain's economy was resilient.

"We have cut VAT on electricity bills and capped bus fares at £2 - to give breathing space to those feeling the strain," he said.

"There is more to do to restore hope and build a stronger economy where prosperity is shared more fairly across Britain."

Shadow chancellor Mel Stride said families across the country will be worried by rising inflation.

"Labour's tax rises and business bashing have driven the cost of living higher and higher, yet Andy Burnham refuses to rule out yet more tax hikes at the Budget," he said.

"It is ordinary people who are left paying the price."

Daisy Cooper, the Liberal Democrats' Treasury spokesperson, said: "The government needs to do much more to bring down energy bills and get our sluggish economy growing again."

She also said the government should "turbocharge the economy" by rejoining the EU single market and create a new customs union with the bloc.

Penny Keevil said the cost of living crisis is here to stay.

She founded Second Chance Medway, a crisis support centre which runs a discounted food pantry two days a week, where she now sees not only those on benefits, but working people too.

"The need for affordable food now reaches across every part of the community," she said. "Energy bills are still far too high and wages and incomes aren't keeping up."

The British Retail Consortium's lead economist Harvir Dhillon said there was some good news for consumers as food inflation slowed.

He said prices for pasta, olive oil and fresh fruit all fell in July, "demonstrating that strong competition among grocers is firmly keeping a lid on people's weekly shop".

Meanwhile, motor fuel price rises eased to 15.5% compared to an increase of 21.3% in the 12 months to June - though they remains much higher than in 2025.

KPMG's chief economist Yael Selfin said July marked the start of a gradual rise in inflation, though she said Wednesday's figure was not enough to spur change in the Bank of England's interest-rate setting decisions.

She added that energy-related costs were expected to push inflation higher over the coming months to a peak of about 3.5%.

Inflation remains above the Bank's 2% target - a level the Bank says keeps prices stable and allows both people and businesses to plan for the future.

Ruth Gregory, chief economist of Capital Economics, expects inflation will fall to the target "by the end of next year" provided energy prices don't rise much further.

"The Bank of England will keep rates at 3.75% this year and cut them to 3% next year," she said.

However, price stability remains elusive, said Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales.

"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," he said.

He added drought-related increases in food prices may also be on the the horizon.