New UK cost of living crisis looms with soaring energy bills forecast to lift inflation

British households are facing a renewed cost of living squeeze as soaring energy bills are forecast to push inflation close to 3% in July, up from 2.6% in June. This increase is attributed to a 13% rise in the energy price cap by Ofgem, with economists predicting it will add approximately 0.44 percentage points to the headline inflation rate. The ongoing Iran war is contributing to global energy market volatility, further complicating the economic outlook. The Bank of England is considering interest rate rises as early as September due to concerns about stubbornly high inflation. Despite government measures like VAT cuts, the Bank predicts inflation could reach 3.2% by year-end, with a potential peak of 4.5% in a worst-case scenario involving further escalation of the Middle East conflict.

UK Prime Minister Andy Burnham is undertaking a nationwide tour to address public financial concerns. The UK is experiencing a rising cost of living, with inflation at 2.8% in June, primarily driven by higher energy prices following the US-Israel war on Iran. This conflict has significantly increased petrol and diesel prices, impacting transport and other goods. Lower-income households are disproportionately affected, with 7.4 million unable to afford essentials. The UK's inflation rate is comparable to other G7 nations, though the US and Italy currently have higher rates. While food price inflation has slowed, it is expected to rise again due to increased energy costs in production and transport.

A Which? report reveals that three million UK households are skipping meals due to rising costs. This drastic measure is a consequence of increased oil and raw material prices, exacerbated by the Middle East conflict, which is leading businesses to prepare for price hikes. Consumer confidence has fallen to its lowest point since 2022, with 71% of adults expecting the UK economy to worsen and 85% worried about food prices. To cope, many households are buying cheaper products, supermarket budget brands, or items on sale. Beyond food, concerns about fuel prices are also high, leading to reduced leisure travel. The report also indicates an increase in missed bill payments, prompting Which? to call for urgent policy interventions to alleviate financial strain and restore consumer confidence.