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Inflation rose to 2.9% in the 12 months to July, up from 2.6% in June, according to the latest data from the Office for National Statistics (ONS), with steeper fuel prices behind the increase.
Core inflation, which strips out more volatile food and energy prices, held steady at 2.6% in July, the same as in June and May, while services inflation eased in July to 3.4%, down from 3.6% in June. Food inflation slowed to 1.3%% in July, down from 1.7% in June, and its lowest level since August 2024.
You can read about some of the ways you might be able to reduce your food costs in our guide 21 ways to save money on your food bills.
Meanwhile, the Retail Prices Index (RPI) measure of inflation, which includes housing costs, rose to 3.2% in the 12 months to July, up from 3% in June.
Kevin Brown, savings specialist and Scottish Friendly, said: “Inflation is on the rise again. July’s 13% increase in the energy price cap means more of the impact of the conflict in the Middle East is now landing directly on UK household bills, with another increase expected in October.
“Yet energy may only be exerting part of the pinch this autumn. Expensive fuel and fertiliser are adding pressure to food production and supply chains, while an exceptionally hot summer raises another threat to harvests. As a result, families may continue to feel the inflationary fallout from this at the till as well as through their utility bills.
“The Bank of England is expected to hold rates in September, although it will have August’s inflation reading to consider before then. But with the majority of forecasts pointing to inflation remaining above its 2 per cent target into next year, policymakers face the perpetual balancing act of getting ahead of rising prices without choking off economic momentum.
“For households, that makes getting the most from every penny ever more important. Competitive savings rates can help cash work harder, while those with a greater appetite for risk and a longer-term horizon may want to consider investing for the potential to achieve returns that outpace inflation over time.”
What inflation means for you
When inflation rises, this means household living costs are increasing at a faster rate than previously. News that it has gone up to 2.9% in the year to July is therefore unwelcome, although it remains well above the government’s 2% target.
Wage growth continues to outstrip the rate of inflation, at an annual rate of 3.5% for the three months to June. Total pay growth (including bonuses) was 4.1%.
Jenny Holt, Customer Savings and Investment Director at Standard Life, said: “When more of the monthly budget is absorbed by essentials such as energy and food, it can also become harder for people to put money aside, whether that’s building emergency savings to cover unexpected costs or contributing towards longer-term goals like saving for retirement.
“Renewed inflationary pressure could also make the Bank of England more cautious on interest rates. While cooling wage growth may ease some of the pressure, a more persistent rise in prices could keep borrowing costs higher for longer. For savers, it is also an important reminder that the headline interest rate on savings only tells part of the story – what ultimately matters is the return they are earning after inflation.”
Inflation and your pension
September’s inflation number is usually considered the most important inflation rate of the year for those reliant on the State Pension. That’s because the increase in prices over the year to this point is usually used to calculate the rate at which certain allowances and benefits, including the State Pension, are increased the following April.
Under the ‘triple lock’ guarantee, the State Pension is guaranteed to rise by the highest of September’s inflation figure, earnings growth, or 2.5%. Earnings figures for the three months to July are used for the yearly increase, and given that these stood at 4.8% last year, that means that the State Pension increased by this amount earlier in April 2026, resulting in an annual rise of up to £575 for those receiving the new State Pension. You can find out more about this in our guide What is the pension triple lock?
Higher inflation is bad news for pensioners who need to make sure their pension lasts throughout their retirement, and the fact that it is likely to rise further in the coming months is worrying for many.
Ms Holt said: “For people approaching or already in retirement, even relatively modest inflation can make a meaningful difference over time. Rising prices steadily reduce what a fixed level of income can buy, making it harder to balance today’s household costs with longer-term plans. Regularly reviewing retirement plans and considering how changing costs could affect the income needed in later life can help people understand whether their savings remain on track.”
Retirees on the lookout for a guaranteed income will find annuities continue to offer good value. The latest data from Hargreaves Lansdown’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,906 per year from a single life level annuity, with a five-year guarantee.
Inflation-linked products are also available – one that rises by 3% per year can give a starting income of up to £5,585 per year at the age of 65 based on the same sized pension pot. As this is considerably lower than a level product, you do need to consider how long it will take the income to catch up to that of a level product.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said, “Inflation is a particular challenge in retirement because income may need to last for decades. The state pension and final salary pensions offer some protection through annual increases, but many retirees with defined contribution pensions need to make more active choices.
“Drawdown, where people keep their pension invested while taking an income from it, gives people flexibility and the potential for investment growth, but it also exposes them to market volatility. Selling investments after markets have fallen can damage a pension’s long-term sustainability, so retirees should think carefully about how they fund withdrawals.
“We recommend keeping at least one year’s worth of essential expenses in an easy-access account, so income does not have to be drawn from investments during weaker markets. Annuities can also play a valuable role by providing guaranteed income for life, but the inflation trade-off is significant. For many retirees, a blended approach may work best, using an inflation-linked annuity to help cover essential spending while keeping the rest in drawdown for flexibility.”
You can find out more about annuities in our guide Annuities explained and about drawdown in our article What is pension drawdown and how does it work? If you want to learn more about the impact of inflation on your retirement savings, read our article How does inflation affect my pension?
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What does it mean for interest rates and your mortgage?
The Bank of England raised the base rate 14 consecutive times since December 2021 to try to dampen inflation, and made its first base rate reduction for over four years in August 2024, taking the rate from 5.25% to 5%. This was followed by a further quarter-point cut in November 2024 and four more in February, May, August and December 2025, which means the base rate is currently at 3.75%.
Despite the fact that inflation rose in the 12 months to July. most commentators don’t expect interest rates to change this month, although the future trajectory of rates depends on which way inflation moves next.
Swap rates, which determine fixed-rate mortgage pricing, have been volatile in recent weeks, with many lenders withdrawing and replacing deals after just a few days.
Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau, said: “If your current deal ends in the next few months, lenders typically start repricing in the run-up to a Bank decision, not after it. So, waiting to see what happens at the next base rate announcement in September could mean missing the deals that were only available beforehand.
“If you’re moving home, none of this should change your plans. However, it’s worth checking your numbers against a rate that’s a little higher than you’ve budgeted for, so a shift in borrowing costs doesn’t catch you out between now and completion.”
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Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
However, even if mortgage rates ease temporarily, borrowers who locked into very low five-year fixed rates in 2021 are likely to face a sharp jump in payments later this year when they come to remortgage, so should start planning for this as soon as possible.
If you’re worried about a potential payment shock when your current mortgage deal ends, read our articles When is the best time to remortgage? and Are you facing a mortgage timebomb?
Impact on savers
If you’re trying to save so that you have a financial buffer in place to cover rising costs, our articles How to build an emergency fund and Best instant access savings accounts may come in handy. Savings rates have risen in recent weeks, so it’s worth checking how much interest your savings are earning and switching to a higher-interest-paying account if one is available.
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said: “Savers may be feeling the squeeze as inflation is back on the rise, which means they will have to pay much closer attention to the rate their money is earning, as accounts paying below inflation will see the true value of their cash eroded.
“However, the good news is that savers are not short of options, with around four in five savings accounts currently paying above inflation. For savers, beating inflation is the difference between simply earning interest and increasing the spending power of their money. While a balance can be growing on paper, it could be shrinking in value if the savings rate fails to keep pace with rising prices.
“For someone with £10,000 in savings, the difference of a competitive rate is stark. In the top easy access account, savers could still be £210 better off once inflation is accounted for. On an average savings account, the real gain falls dramatically to just to £73, but even this is preferable to an account paying 2%, which would leave the saver around £90 worse off in real terms.”
You can learn more about inflation and the impact it has on your finances in our guide What does inflation mean for my money? If you’re looking for ways you might be able to reduce your outgoings, read our article How to save money – 21 money saving tips.
Free financial support services
Millions of people are struggling financially at the moment, and inflation ticking up makes it even mores difficult for many to manage their outgoings.
If your debts are starting to spiral out of control, contact Citizens Advice to help you find a way forward. You can speak to an advisor through its national phone service Adviceline on 0800 144 8848 if you’re in England, 0800 702 2020 if you’re in Wales, 0800 028 1456 if you’re in Scotland and 0808 223 1133 if you’re in Northern Ireland. Alternatively, contact any of the following specialist debt advice charities:
- National Debtline (telephone 0808 808 4000)
- Debt Advice Foundation (telephone 0800 043 4050)
- StepChange (telephone 0800 138 1111)
Sarah Pennells, consumer finance specialist at Royal London, said: :“The outlook will be disappointing for people who are already struggling with the cost of everyday essentials. Our research shows that three in ten adults are financially fragile, with one in eight having less than £50 left over once they’ve paid for the basics, highlighting just how little room many people have to absorb further price rises.”
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