UK inflation rises to 2.9% as Iran war fuels living costs squeeze
UK inflation rose to 2.9% in July, up from 2.6% in June, as the fallout from the Iran war pushed up energy costs and squeezed household finances again. The increase, in line with City forecasts, poses an early test for Andy Burnham's government, which has pledged to give consumers "breathing space" from rising living costs, and complicates the Bank of England's decision on whether to raise interest rates as early as next month.
The Office for National Statistics attributed the rise largely to the sharpest summer jump in energy charges in four years, as the US-Israel war on Iran disrupted global energy markets. However, separate data showing a slowing jobs market, including fewer vacancies and weaker private sector pay growth, may make the Bank of England more cautious about tightening policy. Inflation had been cooling from a peak of 3.8% last year and heading towards 2% before the conflict began in late February, but the Bank has warned it could reach 4.5% by mid-2027 in a worst-case escalation scenario. Burnham has announced measures including a VAT cut on electricity, expected to save households about £45 a year from October, and a £2 bus fare cap, together forecast to lower inflation by 0.1 percentage points.
- UK inflation rose to 2.9% in July, up from 2.6%
- Iran war-driven energy costs are the main driver
- Weak jobs data may deter a Bank of England rate rise
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Inflation measures how quickly the average cost of goods and services is rising, and the government's target for it is 2%. Prices have been climbing faster than that for months, driven largely by energy costs, which surged after the war between the US and Israel against Iran disrupted global oil and gas supplies earlier this year. This matters because it affects the cost of everyday essentials, from heating bills to weekly shopping.
The Bank of England sets interest rates partly based on inflation, using them to try to keep price rises under control, so the figures feed directly into decisions on borrowing costs for mortgages and loans. The government, led by Andy Burnham, has promised to ease the pressure on households' finances and has already brought in measures such as a cut to VAT on electricity bills and a cap on bus fares.
Watching inflation alongside these figures is data on jobs and wages, since a weaker jobs market can influence how the Bank of England responds. Together, these numbers help explain how the fallout from a conflict thousands of miles away is being felt in UK household budgets.
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