Inflation jumps to 2.9% in July as cost of services remains high

• Inflation jumped to 2.9% in July, from 2.6% in June (source: Consumer price inflation, UK: July 2026 | Office for National Statistics)
• Services inflation remained high at 3.4%, while goods inflation went up to 2.2%
• Services inflation is painful because we can’t put off paying for essential services – like rent, which is up 4.1%, and broadband which is up 12.1%
• Even non-essential services can be hard to cut – like vet services, which are up 4.6%, and recreation services, which are up 3.8%
• 10 things you can do to bring down costs

Sarah Coles, head of personal finance at AJ Bell, comments:

“Inflation has risen from 2.6% in June to 2.9% in July, which is always going to stretch household budgets thinner. Yet at this level, inflation is nothing like as dramatic as it was during the height of the cost-of-living crisis, so you’d be forgiven for wondering why money seems so tight right now.

“It’s partly down to wages, because although wages have risen 3.5%, wages in the private sector are up just 2.8% in a year, so plenty of people are getting progressively worse off with each passing month. It also owes something to the cumulative effect of the cost-of-living crisis, which means prices have risen almost 30% over the past five years – although wages have cumulatively risen a similar amount, so it’s not just this.

“A significant part of the problem is the kinds of prices that are rising, and the fact that services inflation is higher than goods inflation. Services inflation includes things like rent, which went from 3.4% in June to 4.1% in July, internet services which were up 12.1%, mobile phone services up 9%, car insurance up 8.4%, care home fees up 6.6%, dental services up 5.2%, education up 5.1%, the cost of playing sport up 4.6% and childcare up 4.2%.

“Meanwhile, the price of some goods is falling. The rate of food inflation slowed to 1.3% and within that there were plenty of fallers, including pizza and quiche down 8.5% in a year, butter down 5.3% and jam, marmalade and honey down 5.1%. Meanwhile the price of men’s clothes is down 0.4%, the price of shoes has fallen 1.5%, garden furniture was down 12% and the price of TVs fell 9.1%.

“It’s worth noting that some goods also soared in price over the past 12 months. Gas and electricity are both classed as goods and gas is up 8% in a year. Water and sewerage are also goods, and are up 7.3%. These play a similar role in our budgets as services – as essential monthly bills – so they are exacerbating the problem.

Why services inflation is rising

“Service industries are often labour intensive and rely on large numbers of staff earning the minimum wage – such as in care homes, hospitality and childcare. It means that as the minimum wage rises, so do costs. This has been exacerbated by rising employers’ National Insurance, so service industries have been passing at least some of these costs on.

“In addition, different service industries face their own pressures. So for example, rents are up in part because mortgage rates have risen and legislation has become more onerous for landlords, which is being passed on to tenants. Meanwhile, childcare costs have risen in part because of staffing costs, but also because the roll out of free childcare has increased demand so much, which has put pressure on capacity. Meanwhile, government funding doesn’t cover all the cost of funded places, so paid-for childcare is having to close the gap.

Why it can feel harder

“Essential services can be harder to cut back on than many goods, where in some cases we can simply put off buying them. If the price of clothes or electrical goods spikes, we can make do with what we have. The same isn’t true for essentials like public transport, rent, childcare and retirement homes. We face some of these costs every month, including things like broadband and mobile phone bills, so we feel the pain of services inflation on a monthly basis.

“Services inflation is often stickier than goods inflation too. Food prices will rise and fall with supply. Meanwhile clothes get discounted as seasons pass and tech gets cheaper once it’s no longer the hottest new gadget. However, once rent rises or the cost of care increases, it rarely falls.

“Not all services are absolute essentials, but some of the nice-to-haves can be tough to cut because this spending involves emotions. It can be difficult to tell the family they can’t go on holiday next year, or that they can’t afford their hobbies. It’s also difficult to travel less to see family and friends or cancel days out without emotional fall out. People might feel guilty when they spend more on these things, but they also feel guilty when they don’t.”

10 things you can do to ease cost pressures

1. Shop around where you can for the essentials. Broadband and media deals can be switched, or you may be able to call your provider and negotiate a better deal just by threatening to quit. Shopping around is also vital for rising goods prices like gas and electricity.
2. Keep services but trade down. So, for example, if you’ve completed the minimum phone contract, you can switch to a SIM-only deal and save. If you want to keep streaming services, you may be able to choose a cheaper tariff.
3. See whether you can get any state support for things like older age care or childcare. Tax-free childcare means the government can top up your childcare account by 20%, which can make a valuable difference.
4. Cancel unwanted memberships and subscriptions to services like gyms. The cost of sports participation is up 4.6%, so if you’re not actually participating, you can cut the cost altogether. Similarly, TV subscription and licence fees are up 3.5%, so consider which ones you really use.
5. Don’t assume regular costs can’t be cut. Public transport can take a major slice of your income, so it’s worth investigating all the transport options, all the ticket options, and any discount cards you may be entitled to.
6. For health and vet care, look into cash plans and vet plans. These will cover the cost of routine appointments and can be cheaper than paying as you go. It’s important to check what you’ll use and whether you’ll save.
7. Get plenty of quotes – for everything from work around the house to car repairs. You don’t necessarily always want to go with the cheapest, but you don’t want to accidentally pick the most expensive either.
8. Shop around for insurance. The cost of all sorts of insurances is rising, so try not to pay over the odds. Don’t accept the renewal quote, check what you can save. See whether you can use things like voluntary excesses to bring costs down.
9. Pay insurance annually not monthly. Shopping around is essential, but you will also usually pay a premium for breaking the cost down monthly.
10. Cut back on the nice to haves. This includes everything from meals out to holidays. It can help to talk to those who are affected and separate the emotion from the spend. Having fun without spending money may require more effort and creativity, but it’s not impossible.