A steel frame can be opened up to take a wider hub. Most of the time if you are going up one size you can just force the wider hub in, some of the first 8 speed hubs were beveled just so people could upgrade their bikes without having the frame worked on. A seven speed hub is 126mm and an 8,9 and 10 is 130. 4mm isn’t much of a stretch for a steel frame. You might think about upgrading to a 9 or 10 speed since you will need a new wheel.