UK inflation has been one of the defining economic issues of recent years. Whether you’re running a small business, managing household finances, or planning for the future, understanding where inflation stands — and where it’s heading — is essential.

Here’s what you need to know right now.

Where Does Inflation Stand Today?

According to the latest figures from the Office for National Statistics (ONS), the Consumer Prices Index (CPI) rose by 2.6% in the 12 months to June 2026, down from 2.8% the previous month. This continues a gradual downward trend from the 3.1% recorded at the start of the year.

The broader measure, CPIH (which includes owner occupiers’ housing costs), came in at 2.8% for June 2026.

While these figures are encouraging, inflation remains above the Bank of England’s 2% target — and the Bank’s own projections suggest CPI could peak at around 3.2% by the end of 2026 before easing further. So we’re not out of the woods just yet.

Why Has Inflation Been Falling?

The recent easing has been driven largely by:

Falling transport costs, particularly motor fuels and diesel
Slower growth in food and goods prices compared to the peaks seen in previous years
The impact of higher interest rates, which have dampened consumer spending and borrowing

However, housing and household services costs have continued to rise, and energy price volatility remains a risk. A sudden shift in global oil and gas markets could push the headline figure back up.

What Is the Bank of England Doing?

The Bank of England held its base rate at 3.75% at its July 2026 meeting. The Monetary Policy Committee voted 6-3 in favour of holding rates, with three members pushing for a further rise to 4%.

This cautious approach reflects the Bank’s concern that inflation could climb again later in the year. Markets currently price in a base rate of around 4.2% by mid-2027, meaning borrowing is likely to remain relatively expensive for some time.

For businesses with variable-rate loans or overdrafts, and homeowners on tracker or standard variable rate mortgages, this is an important consideration for financial planning.

What Does This Mean for Small Businesses?

Inflation creates a difficult environment for businesses, particularly smaller ones with tighter margins. Some of the key pressure points include:

Rising operating costs. Supplier costs, utilities, transport, and raw materials have all become more expensive. Many businesses have had to absorb these increases or pass them on to customers — neither of which is comfortable.

Wage pressures. With the cost of living still elevated, employees are seeking higher pay. Around 66% of businesses with 10 or more employees reported increased staffing costs in mid-2026. Retaining good people is proving challenging, especially for SMEs competing against larger employers.

Consumer caution. When inflation is high, people tend to spend more carefully. This can affect demand, particularly in discretionary sectors such as retail, hospitality, and professional services.

Cash flow management. With costs rising and revenue uncertain, maintaining healthy cash flow is more critical than ever. Late payments, stock build-up, and unexpected outgoings can quickly put pressure on a business’s finances.

Practical Steps for Businesses

If you’re concerned about how inflation is affecting your business, here are some areas worth reviewing:

Review your pricing. If your costs have risen significantly, your pricing should reflect that. Many businesses are reluctant to put prices up, but holding them artificially low is unsustainable. A regular pricing review — at least annually — is good practice.

Manage cash flow proactively. Keep a close eye on your debtor days, stock levels, and upcoming liabilities. A rolling 13-week cash flow forecast can give you early warning of potential shortfalls.

Lock in fixed costs where possible. Whether it’s energy contracts, supplier agreements, or fixed-rate finance, securing certainty on your costs can give you breathing room when markets are volatile.

Claim every tax relief available to you. In a tighter environment, ensuring you’re not overpaying tax becomes even more valuable. From capital allowances to R&D credits, there may be reliefs you haven’t fully utilised.

Talk to your accountant. This is not the time for a set-and-forget approach to your finances. Regular conversations with your accountant — about tax planning, cash flow, and business structure — can make a real difference.

Looking Ahead

The general direction of travel is positive — inflation is falling, and the Bank of England is not expected to raise rates dramatically from here. But 2026 is not a year for complacency. Businesses that plan carefully, manage their costs, and stay close to their numbers will be in the best position to weather any further turbulence.

At RK Accountants, we work with individuals and businesses across the UK to help them navigate exactly these kinds of challenges. Whether you need support with tax planning, cash flow forecasting, or simply understanding what the economic environment means for your finances, we’re here to help.

Get in touch with our team today at rkaccountants.co.uk.

If you’re self-employed or a landlord, one of the biggest changes to the UK tax system in years has already begun — and many people aren’t ready for it.

HMRC’s Making Tax Digital for Income Tax (MTD for ITSA) has started rolling out from April 2026, and it changes how you keep records and report your income to HMRC. Here’s what you need to know.

What is Making Tax Digital for Income Tax?

MTD for Income Tax replaces the traditional annual Self Assessment tax return with a new system of digital record-keeping and quarterly reporting. Instead of filing one return each January, you’ll submit updates to HMRC four times a year, plus a final year-end declaration.

The aim is to reduce errors, improve accuracy, and give both you and HMRC a more up-to-date picture of your tax position throughout the year.

Who does it apply to — and when?

The rollout is being phased by income level:

From April 2026 — Self-employed individuals and landlords with qualifying income above £50,000
From April 2027 — Those with qualifying income above £30,000
From April 2028 — Those with qualifying income above £20,000

One important point: qualifying income means your total gross income (turnover), not your profit. So if you’re a sole trader with £45,000 in sales and also receive £6,000 in rental income, your qualifying income is £51,000 — meaning you’re in scope from April 2026.

What do you actually have to do?

Under MTD for Income Tax, you’ll need to:

Keep digital records of all income and expenses — paper records and spreadsheets that don’t connect to HMRC-approved software no longer meet the requirements
Submit four quarterly updates to HMRC — due by the 7th of August, November, February, and May each year
File a final declaration by 31 January after the end of the tax year, similar to the current Self Assessment deadline

The quarterly updates are summaries of your income and expenses — they’re not four separate tax returns. But they do need to be submitted through HMRC-compatible software such as QuickBooks, Xero, or FreeAgent.

What happens if you don’t comply?

HMRC has introduced a new points-based penalty system. You’ll accumulate penalty points for missed quarterly submissions, and once you hit a threshold, a financial penalty applies. There is a soft landing in place for the first year (2026/27), meaning penalties for late quarterly updates will be applied more leniently — but that grace period won’t last forever.

Are there any exemptions?

Yes, limited exemptions exist. HMRC is now accepting applications from those who are digitally excluded — for example, due to age, disability, or living in an area with poor internet access. If you think you may qualify, it’s worth checking your eligibility sooner rather than later.

How RK & CO can help

At RK & CO Chartered Certified Accountants in Manchester, we’re already helping our clients get MTD-ready. Whether you need help choosing the right software, setting up digital bookkeeping, or understanding exactly when the rules apply to you, we’re here to make it simple.

Don’t wait until a deadline is approaching — the earlier you prepare, the smoother the transition will be.

📞 Call us on 0161 400 7220
📧 Email info@rkaccountants.co.uk

Inflation: What It Means for You and Your Business