British consumer price inflation rose to 2.9 per cent in the year to July, up from 2.6 per cent in June, the Office for National Statistics said on Tuesday, pushing the headline rate further above the Bank of England’s 2 per cent target and reinforcing the case made by the rate-setters who wanted to raise borrowing costs last month.
The acceleration was driven almost entirely by energy. Gas and electricity bills, reset by Ofgem’s quarterly price cap, were the largest upward contributor to the annual rate: gas prices stood 14.7 per cent higher than a year earlier, against a 7.2 per cent fall over the same period in 2025. Housing and household services accounted for the bulk of the move between June and July. Prices rose 0.3 per cent on the month.
Beneath the headline, the picture was more mixed than the top-line jump suggests, and that is where the argument inside the Bank now sits. Core inflation, which strips out energy, food, alcohol and tobacco, held at 2.6 per cent, unchanged from June. Services inflation, the gauge the Monetary Policy Committee treats as the clearest read on home-grown price pressure, eased to 3.4 per cent from 3.6 per cent. Food and non-alcoholic drink inflation slowed to 1.3 per cent from 1.7 per cent, while alcohol and tobacco picked up to 2.5 per cent.
For the doves on the committee, the softer services number is the one encouraging line in the release. For the hawks, a headline rate approaching 3 per cent, and climbing rather than falling, is confirmation that the job is not done.
The cut is off the table
The Bank held Bank Rate at 3.75 per cent on 29 July, but the vote laid bare how contested the next move has become. Three of the nine members of the committee wanted to raise the rate to 4 per cent immediately; the 6-3 split was among the most hawkish of the cycle. Tuesday’s print does little to settle that dispute and, if anything, sharpens it. The headline is moving away from target, not towards it, and further energy-cap effects are still feeding through.
That leaves the idea of a rate cut, which parts of the market had entertained earlier in the summer, firmly off the table for now. With inflation at 2.9 per cent and the Bank’s own forecasts pointing to a bumpy few months, the live question at the September and November meetings is whether to hold or to tighten, not whether to ease.
What the Bank will look through
The important caveat is that much of July’s rise is the kind of externally driven, energy-led move that central banks typically try to look past. The Bank cares less about a one-off cap adjustment than about whether wage and services pressure is becoming embedded. On that measure the news was marginally better. Services cooling to 3.4 per cent, alongside last week’s data showing regular pay growth steady at 3.5 per cent and the labour market softening, suggests the domestic engine of inflation is losing some heat even as the headline climbs.
Producer prices told a similar story of easing pipeline pressure. Factory-gate output prices rose 3.1 per cent in the year to July, down from 3.5 per cent, while input costs rose 4.9 per cent, sharply lower than June’s revised 7.4 per cent. Input prices actually fell 1.7 per cent on the month. Cheaper raw materials and fuel should, in time, take some pressure off consumer prices further down the line.
For households
For households, the immediate effect is higher energy bills through the autumn, only partly offset by falling fuel costs and cooler food inflation. Diesel prices fell by 8.8 pence a litre over the month, against a 2.9 pence rise a year earlier, and European air fares dropped 4.3 per cent, the largest downward pulls on the index.
For the Bank, the release complicates an already awkward autumn. The committee faces a headline rate that is rising for reasons largely outside its control, a domestic services measure that is easing but still well above the level consistent with 2 per cent inflation, and a labour market that is finally loosening. The hawks will point to 2.9 per cent; the doves to services at 3.4 per cent and a cooling jobs market. What almost no one on the committee is arguing, on this evidence, is that inflation has been beaten.
The next CPI release, covering August, is due in September, before the committee’s autumn decisions.
Sources: Office for National Statistics, Consumer Price Inflation, UK: July 2026 (released 19 August 2026); ONS Producer Price Inflation, UK: July 2026; Bank of England Monetary Policy Committee decision, 29 July 2026.
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