Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.
Before the war in the Middle East broke out, UK inflation had been expected to be at or around the target level of 2% over the next five years, according to the official forecasts published in March 2026.
But in April, the Bank of England warned that disruption to global energy markets could push UK inflation as high as 6% in the worst-case scenario.
When the latest ceasefire took effect, analysts said it could limit further inflation hikes. Oil prices initially fell sharply after the deal was announced, but have risen again since the US and Iran resumed attacks in the Strait of Hormuz in July.
As a result, UK petrol prices are likely to climb back up. This – coupled with the increase in household energy bills from 1 July when the new Ofgem price cap took effect – is expected to push UK inflation higher.
The new Prime Minister Andy Burnham has announced that VAT on household electricity bills will be scrapped, but that will not take effect until October. It is predicted to have a small downward impact on inflation.
Precisely because food and energy prices can be very volatile, the Bank of England also considers other economic measures such as “core inflation”, which excludes these costs.
Core CPI was also 2.6% in the 12 months to June, which was unchanged from May.
