Inflation pushed to 2.9% in July as energy bills pile on the pressure

With inflation on the rise, savers are being urged to review their savings accounts.

As widely forecast, July saw the annual rate of UK inflation rise to 2.9% from 2.6% in June, the Office for National Statistics (ONS) revealed today (19 August). This uptick is partly due to rising energy prices as conflict in the Middle East continued, as well as the recent change in the energy price cap which has seen many people’s bills soar. 

Unfortunately, July’s rise is only predicted to be the beginning, with inflation expected to creep higher over the coming months.

What does inflation mean for your money?

The Consumer Price Index (CPI) measures the rate of inflation to show how the prices of goods and services have changed over the past year. When inflation climbs higher, this can erode the purchasing power of your money, meaning that it can buy less than it could previously. Read our dedicated guide for more information on what inflation is, how it’s measured, and how it impacts you.

With further rises to inflation on the cards, savers are being warned to check their savings rates. “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,” Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, commented.

The energy price cap and fuel prices

In a blow to consumers, gas prices rose by 14.7% in the 12 months to July, bringing them to their highest level since March 2024. What's more, last month’s rise in inflation was also driven by higher energy bills following the recent jump in Ofgem’s energy price cap. The cap, which increased on 1 July, previously helped to shelter consumers from the surge in energy prices after the outbreak of war in the Middle East. July’s adjustment has seen many households hit with higher prices. Ofgem estimated that for an average household paying a direct debit for dual fuel, the change in the price cap adds around £221 to their annual bill.

Elsewhere, transport accounted for the largest offsetting downward contribution, with costs rising by 3.6% in the 12 months to July, down from 5.7% in June. This means that prices only increased by 0.2% in July, compared to a 2.2% rise a year ago.

Secure an inflation-beating rate

Although inflation, and energy bills, are on the rise, the market isn’t short of inflation-busting rates with around four in five savings accounts paying above CPI. At the time of analysis, 1,850 savings accounts (including ISAs) beat inflation, compared to 1,825 in June 2026.

“For savers, beating inflation is the difference between simply earning interest and increasing the spending power of their money,” Eastell noted. “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,” she cautioned.

If you were to deposit £10,000 into the market-leading easy access account paying 5.00% AER, you could receive a return of £210 (accounting for inflation), while if you placed your money in an average account offering 3.63% AER, you would get a smaller £73, making the difference between the accounts glaringly obvious.

Are higher-rate taxpayers at risk?

Higher-rate taxpayers will need to be particularly mindful about where they choose to keep their cash, with Eastell warning them to “think beyond the headline rate”.

Even though ISAs may pay slightly lower rates, they could be the better option for those in a higher tax bracket. If they were to place £10,000 into a top savings account paying 5.00% AER, a higher-rate taxpayer would use up their £500 Personal Savings Allowance (PSA), and any further interest could become taxable, whereas if they deposited their savings into a top easy access ISA paying 4.61% AER, they would gain £171 in in real terms.