Key facts
- UK inflation rose to 3.1% in the year to August, up from 2.9%.
- Rising petrol, diesel, and airfares were the main drivers of the increase.
- Petrol prices reached their highest level since November 2022.
- Core inflation and services inflation remained stable.
- The Bank of England's target inflation rate is 2%.
UK inflation accelerated to 3.1% in the year to August, reaching a five-month high, largely driven by increases in petrol, diesel, and airfares. The Office for National Statistics (ONS) reported that motor fuel prices rose by 23% compared to the previous August, with petrol reaching its highest price since November 2022. This surge in fuel costs is linked to disruptions in global oil supplies amid the conflict in the Middle East, which pushed oil prices above $91 a barrel.
Despite the overall inflation increase, core inflation and services inflation remained stable, offering some relief. Capital Economics noted that the impact of higher oil prices had not yet significantly spilled over into food and drink prices, where inflation held steady at 1.3%. However, Paul Dales, chief UK economist at Capital Economics, anticipates inflation will peak at 4.2% in January, driven by higher oil and gas prices and businesses passing on energy costs.
Petrol retailers are experiencing pressure, with Goran Raven, owner of RJ Raven, stating that changes in oil prices have a real-time impact on their thin margins. The rise in inflation moves further from the Bank of England's 2% target, and the central bank is expected to keep its interest rate at 3.75% at its upcoming meeting.
Chancellor John Healey acknowledged the global nature of inflation's impact, while shadow chancellor Andrew Griffith criticized government policies for contributing to rising costs. Yael Selfin, chief economist at KPMG, suggested that a VAT cut would only partially offset higher gas prices.