LONDON (Dispatches) — Britain’s inflation rate has jumped to a four-month high of 2.9%, driven by soaring household energy bills triggered by the ongoing U.S.-Israeli war against Iran, official data showed Wednesday.
The Office for National Statistics reported that annual consumer price inflation rose from a 15-month low of 2.6% in June, reflecting a 13% increase in the energy price cap that added £221 to average household bills. The Office for National Statistics confirmed this was the largest rise in gas prices for nearly four years.
Chancellor John Healey directly acknowledged the crisis, stating: “Iran war inflation continues to impact prices here at home, but Britain’s economy is resilient.”
The war has severely disrupted global energy supplies, with the critical Strait of Hormuz shipping route — through which a fifth of the world’s oil passes — effectively closed. While crude oil prices briefly dipped in July amid hopes of de-escalation, Brent crude futures have since surged 11% in just two weeks. Analysts warn the relief is temporary, with prices rocketing back above $90 per barrel as the war shows no sign of abating.
Economists predict inflation will continue climbing, potentially peaking at 3.5% or higher. Treasury modelling reportedly warns that if the Strait of Hormuz disruption continues, inflation could hit 4.3% early next year and the economy could barely grow.
Unlike the 2022 Ukraine war shock, when energy prices fed into broad cost increases across the economy, the labor market is now cooler. Wage growth has slowed to 3.2%, the smallest since September, limiting secondary inflation effects. Food inflation unexpectedly cooled to 1.3%, an almost two-year low, as supermarkets absorbed some shocks.
The Bank of England had predicted a smaller rise to 2.8% and sees inflation peaking at 3.2% later this year. But KPMG chief economist Yael Selfin expects 3.5%, warning: “July marks the start of a gradual rise in inflation”. North Sea gas prices alone have driven inflation up 0.5 percentage points, according to Investec.
Prime Minister Andy Burnham has cut VAT on electricity bills and capped bus fares at £2 to ease pressure. However, stretched public finances ahead of October’s budget offer little room for broad assistance.
U.S. President Donald Trump claimed on Tuesday the Strait of Hormuz remains open, contradicting Iran’s assertion that the waterway is shut to shipping. No talks are taking place between the two sides.
With the war grinding on and winter approaching, British households face deepening economic strain directly linked to Washington’s military campaign against Tehran.