British inflation is forecast to accelerate to 2.9% in July 2026, up from 2.6% the previous month, driven by a 13% increase in the Ofgem energy price cap that added an estimated £221 to average annual household bills. The Bank of England has warned that rapid expansion of AI capacity is driving up memory chip prices, pushing electronics costs higher and compounding inflationary pressures.
Investec estimates the energy cap rise alone contributed half a percentage point to July inflation. Financial markets place the odds of a rate increase from the current 3.75% at the Bank's September meeting at roughly one in four, while the central bank projects inflation could reach 3.2% by year-end. Heatwaves and drought across Britain and Europe are also expected to drive food prices higher into 2027.
The government has announced support measures including a VAT cut expected to reduce energy bills by £45 annually from October, alongside a first rail fare freeze in 30 years.