Energy Bills Rise 13 Percent, UK Inflation Expected to Reach 2.9 Percent

Illustration of a household gas meter. The increase in energy bills in the UK is expected to push July inflation to 2.9 percent. Illustration photo: Unsplash.

JAKARTA - The cost of living pressure is back to haunt British households. The increase in gas and electricity bills in July is expected to push inflation to 2.9 percent.

The Guardian, quoted on Sunday, August 16, said economists expect core inflation to rise from 2.6 percent in June. Official figures from the Office for National Statistics or ONS are scheduled to be released Wednesday.

The increase was mainly triggered by the decision of the energy regulator Ofgem to raise the price cap on household gas and electricity bills by 13 percent in July.

RSM UK Chief Economist Thomas Pugh estimates that the increase adds about 0.44 percentage points to inflation. The impact is partly offset by lower gasoline and diesel prices.

"Cost of living pressures will return to the forefront," Pugh said, as quoted by The Guardian.

According to Pugh, higher inflation will add pressure on household budgets while making the interest rate outlook more complicated.

The Bank of England has opened the possibility of raising interest rates as early as September. The concern is that high inflation could last longer in the economy.

Before the Iran war broke out, British inflation was expected to move down to around 2 percent. However, the energy turmoil due to the conflict has made the downward path more difficult.

The Bank of England now expects UK inflation to reach 3.2 percent before the end of the year, despite the government having announced a number of measures to curb the cost of living.

The government of Prime Minister Andy Burnham, among other things, cut the value-added tax or VAT to reduce the average electricity bill by around 45 pounds sterling per year starting in October. The government also maintains a bus fare limit of 2 pounds sterling in the UK.

The central bank estimates that the two policies can reduce headline inflation by around 0.1 percentage points.

The Bank of England last month kept rates on hold. However, in a worst-case scenario, an escalation of the war in the Middle East is expected to push inflation to 4.5 percent by mid-2027.

Financial markets are pricing in almost a one-in-four chance that the Bank of England will raise interest rates at its September policy meeting. The current base rate is at 3.75 per cent.

Investors also expect two more quarter-point rate hikes before the end of next year.

According to The Guardian, Interactive Investor's Chief Investment Officer Victoria Scholar expects inflation to continue to rise and peak above 3 percent by the end of the year.

According to Scholar, the pressure comes from high energy prices and traffic jams in the Strait of Hormuz.

"The Bank will likely raise the interest rate by about 25 basis points or 0.25 percentage points once before the end of the year to contain the risk of the economy overheating and help push inflation back toward the 2 percent target," Scholar said.

Amid the pressure, the British economy has so far shown resilience. Official data last week showed the economy grew in the first half of 2026 at the fastest rate among the G7 countries.

Labor market data due out Tuesday is also expected to show wage growth continuing to slow.