Inflation Rises to 2.9%: What Businesses Need to Know

 

 

UK inflation has risen to 2.9% in the year to July 2026, up from 2.6% in June and reaching its highest level for four months. 

 

The latest figures from the Office for National Statistics (ONS) show that the increase was driven largely by higher household energy costs following a significant rise in the energy price cap. 

 

While the headline figure will attract attention, the wider picture is more mixed. Core inflation remained at 2.6%, while services inflation eased, suggesting that underlying price pressures may not be increasing as quickly as the headline figure indicates. 

 

 

One of the biggest factors behind July's increase was the rise in household energy prices. 

 

Ofgem increased the energy price cap by 13% from 1 July, meaning energy prices for a typical household paying by Direct Debit increased significantly during the quarter. 

 

Higher gas and electricity costs feed directly into household inflation, but they can also have wider consequences for the economy. 

 

Businesses facing higher energy costs may need to review their prices, while households paying more for essential bills may have less disposable income available for other spending. 

 

Global energy markets have also remained volatile amid geopolitical tensions in the Middle East, creating further uncertainty over the outlook for energy prices and inflation. 

 

 

The Bank of England's target for inflation is 2%, meaning the latest 2.9% figure remains significantly above target. 

 

However, there are some encouraging signs beneath the headline number. 

 

Core inflation remained at 2.6%, while services inflation fell from 3.6% to 3.4% in July. Food and non-alcoholic beverage inflation also eased to 1.3%. 

 

This is important because the Bank of England will be looking not only at energy prices, but also at whether higher costs are feeding into broader and more persistent price increases. 

 

 

There is a possibility that inflation could rise further later this year. 

 

The Bank of England has previously indicated that inflation could reach around 3.2% before beginning to fall back towards its 2% target. 

 

Energy prices will be an important factor in determining whether that forecast becomes reality. 

 

If wholesale energy prices remain elevated, businesses and households could face further increases in their costs. However, if energy prices stabilise and domestic inflationary pressures continue to ease, the recent increase could prove relatively temporary. 

 

 

For households, higher inflation means that everyday expenses can continue to put pressure on disposable income. 

 

Energy bills are one of the clearest examples. When more of a household's income is being spent on gas and electricity, there may be less available for discretionary spending such as leisure, eating out, holidays and larger purchases. 

 

Keeping track of household expenditure and regularly reviewing bills can therefore become increasingly important during periods of higher inflation. 

 

 

The impact of inflation can be particularly significant for small and medium-sized businesses. 

 

Energy is an important cost for many businesses, but it is rarely the only one increasing. 

 

Businesses may also be dealing with higher costs for: 

 

 

When several of these costs increase at the same time, profit margins can quickly come under pressure. 

 

This makes it important for business owners to understand exactly how much it costs to operate their business and whether their current pricing still provides an appropriate level of profitability. 

 

 

Higher costs can create additional pressure on cash flow, particularly for businesses that operate on tight margins. 

 

Business owners should consider regularly reviewing: 

 

Profit margins – Are rising costs reducing profitability? 

 

Pricing – Do current prices still reflect the cost of delivering products or services? 

 

Overheads – Which business expenses have increased over the past 12 months? 

 

Debtors – Are customers paying invoices on time? 

 

Cash-flow forecasts – What would happen if costs increased further? 

 

Having accurate and up-to-date accounts can give business owners a much clearer picture of their financial position and help them make informed decisions. 

 

 

The latest inflation figures will be closely watched by the Bank of England. 

 

The Bank currently has Bank Rate at 3.75%, with its next scheduled decision due on 17 September 2026. The Bank has acknowledged that energy prices remain high and volatile because of the conflict in the Middle East. 

 

However, financial markets are not currently expecting an immediate change in interest rates. 

 

A Reuters survey of economists found that almost 90% expected the Bank Rate to remain at 3.75% for the remainder of 2026. 

 

The easing in services inflation and slower wage growth could give policymakers some reassurance, although further increases in energy prices could change the outlook. 

 

 

The latest inflation figures shouldn't necessarily be a reason for businesses to panic. Instead, they provide a useful reminder to review the numbers. 

 

Businesses should consider: 

 

 

The businesses that understand their numbers are generally better placed to respond when economic conditions change. 

 

 

The rise in inflation to 2.9% demonstrates how quickly changes in energy prices can affect the wider economy. 

 

However, the latest figures also provide some positive signs. Core inflation has remained stable, services inflation has fallen and food price inflation has eased. 

 

The key question over the coming months will be whether the increase in energy costs remains a temporary shock or begins to feed into wider and more persistent inflation. 

 

For businesses, the best response is to remain prepared. 

 

Keeping accurate accounts, monitoring cash flow and regularly reviewing costs and pricing can help businesses remain financially resilient, whatever happens with inflation. 

 

 

At JSB Chartered Certified Accountants, we help businesses understand their financial position, manage cash flow and make informed decisions about their finances. 

 

If rising costs are affecting your business, or you would like to review your accounts, budgets or cash-flow position, get in touch with JSB Chartered Certified Accountants today.