UK inflation is back above target, but the useful question is no longer whether the post-2022 inflation shock has ended. It has. The useful question is what happens next. The latest official reading is 2.9% CPI inflation in the year to July 2026, up from 2.6% in June. CPIH, which includes owner-occupier housing costs, was 3.1%. The Bank of England’s target is 2% CPI inflation.
The July rise does not by itself mean that a new domestic inflation cycle has begun. Core CPI was 2.6%, unchanged from June, while services inflation eased from 3.6% to 3.4%. The complication is energy. The Bank’s July Monetary Policy Report said the underlying disinflation process was continuing, but that higher and volatile energy prices were likely to lift headline inflation again later in 2026. That leaves the UK with a split picture: softer domestic pressure underneath, and a fresh external price shock sitting on top.
Where UK inflation is now
The Office for National Statistics reported that CPI rose 2.9% in the 12 months to July 2026. Housing and household services and furniture made the largest upward contributions to the change in the annual rate, while transport partly offset them. The details matter because they tell us whether inflation is broadening through the economy or being pushed around by a narrower set of prices.
There is still evidence of underlying improvement. Core CPI, which strips out energy, food, alcohol and tobacco, was 2.6%. Services inflation is especially important to the Bank of England because it is more closely tied to domestic wages and price-setting than imported goods prices are. At 3.4% in July, services inflation remains above a rate consistent with 2% headline inflation over time, but it is materially below the levels seen earlier in the cycle.
What the Bank of England expects
The Bank held Bank Rate at 3.75% in July 2026. Its central message was deliberately conditional rather than a clean point forecast: energy prices had been volatile and higher than before the Middle East conflict, headline CPI was expected to rise later in the year, and the risk of second-round effects would increase if those higher costs persisted. At the same time, labour-market conditions were loose and recent data still showed underlying disinflation.
That distinction is the heart of the 2026 outlook. A temporary energy-driven rise in CPI is not the same thing as persistent inflation. Monetary policy cannot make imported oil or gas cheaper. What the Monetary Policy Committee is trying to prevent is the external shock feeding into wages, expectations and wider business pricing strongly enough to keep inflation above target after the original shock fades.
The March 2026 Office for Budget Responsibility forecast had CPI returning to the 2% target in late 2026. That forecast predates the full effect of the subsequent energy shock, so it is now better treated as a baseline than as a live description of the next few months. The Bank’s July assessment is more current and explicitly puts the near-term risks to inflation on the upside.
What could push inflation higher?
The first risk is obvious: energy. A sustained rise in oil, gas and refined fuel prices raises household bills directly and then works through business costs. The longer it persists, the greater the chance that firms reprice more broadly and workers seek compensation through wages.
The second risk is persistence in domestic services. If services inflation stops falling while headline inflation rises, the Bank would have much less confidence that the problem is temporary. Wage growth and firms’ own inflation expectations therefore matter almost as much as the monthly CPI print.
The third risk is sterling. A materially weaker pound raises the sterling cost of imported goods and energy. Currency moves are not mechanically passed through one-for-one, but a sustained depreciation would make the inflation arithmetic harder.
What could bring inflation back down faster?
A softer labour market, weak household demand and tighter financial conditions all pull the other way. The Bank has repeatedly pointed to easing labour-market conditions and subdued demand as forces that should reduce inflation over time. If energy prices normalise while services inflation continues to cool, headline CPI could fall quite quickly once the external shock stops adding to the annual comparison.
This is why a single inflation number is a poor guide to the next interest-rate move. The MPC is looking for evidence about persistence: services inflation, wages, expectations, business pricing and the duration of the energy shock. For the current policy position, see our living guide to UK interest rates. For the household side, UK consumer spending and CPIx track how price and credit pressure are feeding into demand.
What to watch next
The next ONS consumer-price release is due on 16 September 2026, followed by the Bank of England’s next rate decision on 17 September. The useful test is not simply whether CPI is above or below 2.9%. Watch whether the increase is concentrated in energy-sensitive categories, whether services inflation continues to fall, and whether the Bank sees evidence that higher energy costs are becoming embedded in wages and wider prices.
Primary sources
- Office for National Statistics: Consumer price inflation, UK, July 2026.
- Bank of England: Monetary Policy Report, July 2026.
- Office for Budget Responsibility: Economic and fiscal outlook, March 2026.
Checked 11 September 2026. We update this page when the inflation or policy outlook changes materially rather than publishing a new URL for each data release.