UK inflation rose to 2.9% in July, up from 2.6% in June, driven mainly by higher energy bills following an increase in Ofgem's quarterly price cap. The rise highlights the scale of the cost of living challenge facing prime minister Andy Burnham, whose early move to cut VAT on electricity bills risks being overwhelmed by broader price pressures, with another Ofgem cap increase expected in October and fuel prices climbing again as hopes of a lasting Middle East ceasefire fade.

Core inflation, which strips out volatile food and fuel costs, held steady at 2.6%, and wage growth slowed, easing concerns at the Bank of England about inflation becoming embedded in the economy ahead of its rate decision next month. Food price inflation remained low at 1.3% in July but is expected to rise due to extreme heat and drought, while rising government borrowing costs — with 10-year gilt yields hitting 5.05% — will complicate chancellor John Healey's efforts to fund further household support, with the TUC proposing a windfall tax on banks.