UK inflation rises to 2.9% in year to July as Iran war continues to impact prices

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The figures compare to the rate of 2.6% announced last month for the year to June.

In response, Chancellor John Healey said: "Iran war inflation continues to impact prices here at home, but Britain’s economy is resilient.

"We have cut VAT on electricity bills and capped bus fares at £2 – to give breathing space to those feeling the strain.

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"There is more to do to restore hope and build a stronger economy where prosperity is shared more fairly across Britain."

Wednesday's figures follow a 13% rise in Ofgem's energy price cap last month

It follows a 13% hike in Ofgem’s energy price cap last month, which increased the average gas and electricity bill by £221 to £1,862 a year.

Deputy director for prices at the ONS, Mike Hardie, said: "Inflation rose in July, driven by a sharp increase in gas prices following this month’s change to the energy price cap.

"This was the largest rise in gas prices for almost four years.

"Other upward pressures included furniture prices falling by less than usual for this time of year, and also a smaller fall for clothing prices due to reduced discounting."

Crude oil has since rocketed back up above $90 a barrel as the war shows no sign of ending and the crucial Strait of Hormuz shipping route, through which a fifth of the world’s oil and gas supplies is normally carried, remains closed.

Bogdan Toma, Partner and Head of UK Consumer Practice at McKinsey & Company, said: "We shouldn’t see July’s print as a barometer for the rest of the year.

"With many of the UK's crop output constrained by extreme weather and continued supply chain challenges, we could see increased price pressures on food and beverage prices into the Autumn."

Victoria Scholar, head of investment at Interactive Investor, has predicted that the Middle East conflict could force the Bank of England to raise interest rates from 3.75% to 4% by the end of the year.

She said: “The Bank of England is likely to carry out roughly one 25 basis point hike by the end of the year as it looks to temper the risk of overheating and help push the inflation rate back in the direction of the central bank’s 2% target.”