Latest reading on Wednesday likely to frame scale of challenge for new PM to ease pressures on households amid Iran war fallout
British households are facing a renewed cost of living squeeze, with official figures expected to show this week that soaring energy bills drove up inflation in July to close to 3%.
As the Iran war continues to send shock waves through global energy markets, economists predict the surge in UK gas and electricity bills last month will push Britain’s headline inflation rate to 2.9%.
In a fresh squeeze on household budgets, the figures from the Office for National Statistics (ONS) due on Wednesday are forecast to show a jump from a rate of 2.6% in June.
It comes as the Bank of England considers raising interest rates from as early as September in response to fears over stubbornly high inflation becoming entrenched in the economy.
Reports also emerged overnight that the water regulator Ofwat was considering plans to impose “surge pricing” on water usage during droughts. It could see customers charged more for water use during summer and less in winter, or else charged higher prices when they pass a threshold of water use, according to the Daily Telegraph.
The latest snapshot will also highlight the challenge facing Andy Burnham’s government to ease the financial pressure on households and businesses before a difficult autumn budget.
Economists said a rise in inflation as measured by the consumer prices index was likely after Ofgem, the energy regulator, lifted its cap on household gas and electricity bills by 13% in July.
Thomas Pugh, chief economist at the accountancy firm RSM UK, said the increase would add about 0.44 percentage points to headline inflation. This would be partly offset by a fall in petrol and diesel prices.
“The cost of living squeeze is set to return to the headlines,” he said. “[Higher inflation is] adding fresh pressure to household budgets and complicating the outlook for interest rates.”
As the stop-start Middle East war fuels volatility in the global oil price, countries around the world are facing renewed inflationary pressures and heightened uncertainty over the scale of the economic hit.
Britain’s economy has shown more resilience than initially feared, with official figures last week showing that it continued to grow in the first half of 2026 at the fastest pace in the G7. Inflation also fell by more than expected in June, to 2.6% – down from a peak of 3.8% last year.
Inflation had been on track to fall to close to 2% before the outbreak of the Iran war.
However, economists warn the impact from the conflict is likely to weigh more heavily in the second half of the year after the increase in the Ofgem energy price cap.
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