What Rising Inflation Means for Your Savings and Investments
UK inflation rose to 2.9% in July 2026, up from 2.6% in June, the first increase in four months, driven largely by a 13% jump in the Ofgem energy price cap feeding through into gas and electricity bills. For anyone holding significant cash savings, or wondering whether their investments are keeping pace, this is worth pausing on.
How rising inflation can erode the value of cash savings
Even a decent savings account rate can leave you worse off in real terms if inflation runs ahead of it. At 2.9% CPI, a savings account paying less than that, once you also account for tax on the interest, means the purchasing power of that money is falling, even as the balance grows.
What this means if you're holding a lot in cash
Emergency funds will commonly be held in readily accessible cash, that's not what this is about. But surplus cash beyond that buffer, sitting in a low-interest account "for safekeeping," is often the money quietly losing the most value. We've written before about why ISAs are a useful tax-efficient home for money not needed in the short term here Why You Should Invest in an ISA, inflation is exactly the kind of pressure that makes that wrapper worth considering.
Why this also matters for interest rates
The Bank of England held its base rate at 3.75% at the end of July, on a 6–3 vote, with three members already pushing for a hike, partly over concerns that energy-driven inflation could broaden. Its next decision lands on 17 September. If rates do rise, it's a mixed picture: better news for savers, tougher news for anyone with a mortgage or other borrowing.
What to do about it
Check whether cash held beyond your emergency fund is actually earning enough to beat inflation
Consider whether a stocks and shares ISA suits money you won't need for several years
Revisit how well your existing portfolio is positioned if inflation stays above target for a while
Treat one month's data as a prompt to review, not a reason to make sudden changes
Investments can fall as well as rise in value, and you may get back less than you invest.