Key facts
- UK inflation rose to 3.1% in the year to August, up from 2.9%.
- The increase was driven by higher petrol, diesel, and airfare costs.
- Petrol prices reached their highest point since November 2022.
- Motor fuel prices increased by 23% year-on-year.
- Oil prices surpassed $91 a barrel amid Middle East conflict.
- Food and drink inflation remained at 1.3%.
UK inflation reached a five-month high in the year to August, climbing to 3.1% from 2.9%, according to the Office for National Statistics (ONS). The rise was primarily driven by increased costs for petrol, diesel, and airfares. Petrol prices saw their sharpest increase since November 2022, with motor fuel prices up 23% year-on-year.
The conflict in the Middle East has disrupted global oil supplies, pushing crude oil prices above $91 a barrel. This surge in energy costs has directly impacted raw material prices and the cost of goods leaving factories, as noted by ONS chief economist Grant Fitzner.
Despite the rise in fuel costs, inflation for food and drink remained at 1.3%. However, Capital Economics chief UK economist Paul Dales warned that larger increases in inflation are expected, forecasting a peak of 4.2% in January due to higher oil and gas prices and businesses passing on energy costs. KPMG chief economist Yael Selfin noted that a VAT cut would only partially offset rising gas prices, which could lead to further double-digit increases in household energy bills from January.
Small petrol retailers are feeling the pressure, with Goran Raven, owner of RJ Raven, stating that margins are very thin and sales are down 20% year-on-year. He highlighted the daily impact of fluctuating spot prices on his business.
The rise in inflation moves it further from the Bank of England's 2% target, with the bank's interest rate currently at 3.75%. The bank is set to decide on potential changes to the rate this week.
Chancellor John Healey acknowledged the global impact of the Middle East war on inflation but stated the UK economy is proving resilient, despite economic growth slowing to 0.4% in the second quarter. Shadow chancellor Andrew Griffith criticized government policies for contributing to rising costs for consumers.