One 13% Energy Price Cap Rise, and Inflation Is Back Up

Britain's energy price cap went up 13% in July, and this week the country finds out what that did to the cost of everything else. Economists expect Wednesday's figures from the Office for National Statistics to show consumer prices index inflation at roughly 2.9% for July, up from 2.6% in June. That is nowhere near the chaos of 2022. But it is the wrong direction, and the cause is sitting on your own gas and electricity statement.

Thomas Pugh, chief economist at RSM UK, calculates that the increase in household energy bills alone adds about 0.44 percentage points to the headline rate. Put another way: strip out that one regulated price change and inflation would be sitting close to where it was in the spring. Before the outbreak of war involving Iran, forecasters had inflation on track to drift back towards the Bank of England's 2% target by now.

The squeeze is showing up in wages too. Real weekly earnings growth started 2026 at 0.4% and has since thinned to around 0.1%, according to Al Jazeera's analysis of ONS data. The Joseph Rowntree Foundation says 7.4 million low-income families cannot afford essentials this year, the highest count since 2021. Pay is technically still beating prices. It no longer feels that way at the till.

The 13% rise that reset the maths

Regulated prices behave differently from ordinary ones. When a supermarket lifts the price of pasta, shoppers switch brands and the effect washes out. When Ofgem lifts the cap, roughly two-thirds of British households see the same increase on the same date, and it stays in the index for a full year. That is why one quarterly decision can move a national statistic that covers hundreds of categories.

The cost of living squeeze is set to return to the headlines, said Thomas Pugh of RSM UK.

Fuel has piled on top. Petrol has climbed from about £1.32 a litre in late February to £1.61 by 11 August, with diesel up from £1.42 to £1.81. Food inflation, running at 1.7% in June, is forecast by supermarket bosses to reach 4–5% by the end of the year as higher energy and haulage costs work through processing plants and chilled warehouses.

How the energy price cap feeds into inflation

The Bank of England already expects headline inflation to touch 3.2% before the year is out. In its worst case, involving further escalation in the Middle East, it sketches a peak of 4.5% by mid-2027. Neither number assumes a repeat of 2022, when the announced cap rise was 80% in a single step and the crisis dominated politics for two winters. This is a smaller shock landing on households that never fully recovered from the last one.

What happens on 26 August

Ofgem must publish the October cap by 26 August, calculated from a market observation window that closes on 18 August. Cornwall Insight, whose pre-announcement estimates usually land within a few pounds of the final figure, currently forecasts about £1,700 a year for a typical dual-fuel direct debit customer, made up of roughly £860 of electricity and £839 of gas.

Ofgem's new idea of a typical household

Read that £1,700 carefully. On 1 July, Ofgem cut its assumed typical consumption to 2,500 kWh of electricity and 9,500 kWh of gas a year. The headline figure now describes a smaller household than it did last year, so it is not directly comparable with the numbers quoted in previous winters. Your actual bill still depends on the units you burn and where you live, since regional rates differ.

A VAT cut worth about £45 a year

The prime minister, Andy Burnham, has announced what he calls breathing space measures: a VAT reduction that trims roughly £45 a year off the average electricity bill from October, plus a £2 bus fare cap in England. Helpful, but modest against a 13% cap rise. Cornwall Insight's forecast already includes the VAT change and still points to bills edging up rather than down.

Where the wholesale market goes next

Everything hinges on gas. Wholesale prices have been pushed higher by Middle East tension, and the cap simply passes that through with a lag of a few months. A calmer autumn would show up in the January cap, not the October one.

Does this mean higher interest rates?

Markets now price in two quarter-point rate rises before the end of next year, with about a one-in-four chance the first comes at September's meeting. Victoria Scholar of Interactive Investor expects one 25 basis point increase by year end. For anyone on a tracker mortgage or coming off a fix, that is the second bill to watch after the energy one.

What to do before the October bills land

You cannot argue with the cap, but a few things are worth doing in the next fortnight rather than in November.

• Submit a meter reading on or close to 30 September, so old-rate usage is billed at the old rate.
• Compare any fixed tariff on offer against the forecast £1,700 level, not against what you paid last winter.
• Check the standing charge as well as the unit rate — it varies by region and you pay it even in an empty house.
• If you are on a prepayment meter or in arrears, contact your supplier before the cap changes, when support teams are less swamped.

Two dates matter. Wednesday's ONS release tells you how much damage July's increase has already done, and Ofgem's announcement by 26 August tells you what you will actually pay from 1 October. If the October cap comes in near Cornwall Insight's estimate, budget for a winter that costs a little more than last year's, and treat any fixed deal below that level as worth a serious look.