Inflation rose to 2.9% in July, up from 2.6% in June, after millions of households were hit with a spike in energy bills last month. The increase follows a 13% hike in Ofgem's energy price cap.
Government VAT cut and future price cap
The Government has pledged to cut VAT on electricity bills for six months starting from September, but analysts say any saving will likely be wiped out by another expected rise in the price cap this October. Ofgem will announce the next price cap level for October to December on August 26.
How inflation affects households
Inflation is a measure of price rises. For example, if the rate of inflation is 3%, then something that cost £100 last year would cost £103 now. When inflation goes up, it means prices are rising faster than before, putting more pressure on households.
The Bank of England has a target of 2% inflation and uses interest rates to keep price rises under control. The idea is that when interest rates are higher, borrowing costs more, which encourages people to spend less. When people spend less, demand for goods goes down, forcing businesses to stop raising prices or even lower them, helping bring inflation down.
