European Inflation

UK consumer price inflation climbed to 2.9% in July, its highest level in four months, after forecasts anticipated a jump driven by rising energy costs. Gas prices recorded their sharpest increase in nearly four years, propelled by the effective closure of the Strait of Hormuz during the US-Iran conflict and surging European demand amid a continental heatwave.

Core inflation, which strips out volatile energy and food prices, held steady at 2.6%, while food and drink inflation eased to 1.3%, its lowest rate in nearly five years. Cornwall Insight forecasts a further 4% rise in household energy bills when the October cap is set on 26 August. Oil prices have climbed back above $90 a barrel.

Separately, the Competition and Markets Authority opened probes into Trainline, Virgin Atlantic and RED Driving School over concerns about full price display. Inflation is projected to reach approximately 3.5% by year-end.

Britain's Competition and Markets Authority has opened investigations into Trainline, Virgin Atlantic and RED Driving School over suspected drip pricing, the illegal practice of omitting mandatory charges from advertised headline prices.

The watchdog observed additional fees of up to £2.79 on train fares and £1.50 on coach bookings through Trainline. Virgin Atlantic faces scrutiny over whether resort fees and local taxes reaching hundreds of pounds were included in upfront holiday prices, while RED Driving School is being examined for booking and digital fees of more than £7 per lesson. Trainline shares fell roughly 15% in early trading on Wednesday.

The probes are part of a broader CMA clampdown using new consumer protection powers granted last year that allow it to rule on infringements without going to court. Companies found in breach can be fined up to 10% of global turnover, and affected consumers could receive compensation.

Eurozone annual inflation accelerated to 2.9% in July, up from 2.8% in June, Eurostat confirmed on Tuesday. Across the wider European Union, inflation climbed to 3%, also up from 2.9% the previous month.

Price pressures varied sharply across member states. Romania posted the highest annual rate at 8.2%, followed by Lithuania at 5.4%, while Sweden recorded the lowest at 0.3%. The Czech Republic had the second-lowest rate at 1.3%. Italy saw a slight easing, with inflation dipping to 2.9% from 3% in June.

In the United Kingdom, the consumer price index rose 2.9% year-on-year, up from 2.6% in June, with core inflation holding at 2.6%. Energy price increases were linked to the ongoing conflict with Iran. The European economy continued to expand in 2026 despite an energy shock, following 1.5% growth in 2025.

Global food prices are forecast to climb 11.8% this year and a further 4.8% in 2027, driven by conflict in the Black Sea region and extreme weather across Europe, according to Oxford Economics. The projected increase, while substantial, remains below the 14.2% surge recorded in 2022.

Cereals, which make up a quarter of the global food price index, face intense pressure. Wheat is expected to jump 36% year on year to $6.92 a bushel in the third quarter, while Coceral cut its EU-27 and UK grain harvest forecast to 286.6 million tonnes, down from 310 million tonnes in 2025. Germany's output alone is seen falling 7% after severe drought and heatwaves. Meanwhile, attacks on Russian and Ukrainian ports threaten 86 million tonnes of annual grain-export capacity, nearly 17% of global cereal exports.

Rising input costs compound the squeeze, with fertiliser prices forecast to rise 22% in 2026 and diesel surging 36% year on year in July. Fresh-food prices could begin reflecting the disruption between October and November, with processed foods hit hardest between February and May 2027.