19th August 2026
Britain's inflation problem has not gone away. It has simply changed shape.
The latest figures from the Office for National Statistics contain some genuinely encouraging news, particularly for food shoppers and motorists. But they also contain a warning that could prove more important in the months ahead.
After falling for several months, UK inflation has turned upwards again.
The Consumer Prices Index rose by 2.9% in the year to July 2026, up from 2.6% in June. CPIH, which includes owner-occupiers' housing costs and is regarded by the ONS as its most comprehensive measure, increased from 2.8% to 3.1%.
It is the first increase in both measures since March.
That may sound like a relatively small movement — just three-tenths of a percentage point — but it matters because it comes at a time when households are still dealing with the accumulated effects of several years of price increases.
Inflation falling does not mean prices are falling. It means they are rising more slowly.
And now that rate of increase is moving upwards again.
Energy has returned to the inflation story and is the biggest reason for the July increase was not food. It was housing and household services, particularly energy.
The ONS recorded a 14.7% annual increase in gas prices in July. Electricity prices were 3.6% higher than a year earlier.
The rise in gas prices was largely associated with the July change in the energy price cap. The ONS describes it as the largest monthly rise in gas prices since October 2022, during the energy crisis that followed Russia's invasion of Ukraine.
For households already struggling with energy costs, this is significant.
It also illustrates something that is sometimes lost in the headline inflation figure. A household does not experience the national inflation rate. It experiences the prices of the things it actually has to buy.
For somebody living in a well-insulated home with relatively low energy consumption, the impact might be manageable.
For somebody in a poorly insulated house, somebody dependent on heating oil, somebody who has to drive long distances to work or shop, or somebody living in rural Scotland where alternatives can be limited, the personal inflation rate can look very different.
Food is the brighter part of the report and there is better news in the supermarket aisle. Food and non-alcoholic beverage inflation fell from 1.7% in June to 1.3% in July. That is the lowest annual food inflation rate since September 2021.
Prices were broadly unchanged during July itself, whereas they increased by 0.4% in July last year. This is important because food was one of the most painful parts of the cost-of-living crisis.
But there is an important distinction between prices falling and inflation falling.
A loaf of bread, a packet of coffee or a joint of meat can still cost considerably more than it did several years ago. A 1.3% annual inflation rate simply means that, on average, food prices are now increasing relatively slowly.
The ONS found some particularly interesting movements beneath the headline figure.
Prices for meat, especially beef and breaded chicken, contributed to the fall in food inflation. Vegetables also provided a downward effect.
Fish, bread and cereals went in the other direction, with prices rising during July.
So the supermarket experience remains mixed.
Petrol and diesel are helping — for now
There is another piece of relatively good news for consumers.
Transport inflation fell considerably, from 5.7% to 3.6%.
Diesel prices dropped by 8.8p a litre between June and July, while petrol fell by 3.1p.
The average July price was nevertheless 167.6p for diesel and 152.2p for petrol. And despite the recent falls, motor fuel prices were still 15.5% higher than a year earlier.
This is a useful reminder of how quickly the inflation picture can change.
Fuel prices are heavily influenced by global oil markets. If crude oil prices rise again, the benefit currently being provided by cheaper petrol and diesel could disappear remarkably quickly.
For rural communities that is especially important.
In much of rural Scotland, driving is not an optional extra. It is part of getting to work, accessing healthcare, taking children to activities, shopping and simply maintaining a normal life.
A few pence on a litre can therefore have a much greater practical effect than the national inflation figures suggest.
The underlying picture is not entirely comfortable
Perhaps the most interesting part of the ONS report is what is happening underneath the headline number.
Core CPI, which strips out energy, food, alcohol and tobacco, remained at 2.6%.
Core CPIH increased slightly from 2.8% to 2.9%.
At the same time, goods inflation increased from 1.7% to 2.2%, while services inflation fell from 3.6% to 3.4%.
That tells us this is not simply a story about one component of the economy suddenly becoming more expensive.
There are still inflationary pressures elsewhere.
Services, in particular, remain considerably above the Bank of England's 2% target.
Housing is another area worth watching. Owner-occupiers' housing costs increased at an annual rate of 3.7% in July, up from 3.3% in June. The ONS notes that their contribution to inflation has now increased for two consecutive months following 16 consecutive falls.
That reversal deserves attention.
Britain's inflation problem is becoming more complicated
The July figures therefore tell two stories at once.
The first is reassuring.
Food inflation is falling. Petrol and diesel prices came down during the month. Services inflation eased and core CPI remained unchanged.
But the second story is more worrying.
Energy prices have jumped. Housing costs are beginning to exert greater pressure again. Goods inflation has increased and overall CPI inflation is moving away from the progress made earlier this year.
And there is another factor that cannot simply be ignored: the international environment.
The ONS says the July energy-price increase was partly connected with higher wholesale energy prices and notes that the assessment period for the July-to-September energy price cap was the first to include the effects of the conflict in the Middle East.
That creates a potential vulnerability for the British economy.
If global oil and gas prices remain elevated, the effect does not stop at petrol stations or household energy bills.
Energy is an input into almost everything.
Transport becomes more expensive. Farming becomes more expensive. Manufacturing becomes more expensive. Distribution becomes more expensive. Businesses eventually have to decide whether to absorb those costs or pass some of them on to customers.
That is how an energy shock can gradually become a wider inflation problem.
What does this mean for households?
For consumers, the July figures are a reminder that the cost-of-living crisis has not simply disappeared because inflation has fallen from its previous highs.
The rate of inflation is now much lower than it was during the worst of the crisis.
But prices remain permanently higher than they were before that crisis.
And households now face another uncertainty: where does inflation go next?
If energy prices settle, food inflation continues to moderate and fuel prices remain relatively subdued, inflation could move back down.
But if energy prices rise again, particularly against a background of geopolitical uncertainty and expensive oil, the picture could change very quickly.
That is why the July ONS figures should probably not be viewed simply as a disappointing three-tenths increase.
They are a warning that inflation can return even after it appears to be under control.
For Britain, and particularly for households and businesses already operating with very little financial room for manoeuvre, that may be the more important message hidden inside today's numbers.
The inflation battle is not over.
It may simply be entering another phase.
Read the full ONS report HERE