Key facts
- UK inflation rose to 3.1% in August, up from 2.9% in July.
- Motor fuel prices rose by 23% in the year to August.
- Petrol prices hit their highest level since November 2022.
- Core and services inflation remained stable.
- The Bank of England's inflation target is 2%.
UK inflation accelerated to 3.1% in the year to August, a five-month high, driven by a significant increase in motor fuel prices and airfares, according to the Office for National Statistics. The rise in petrol prices to 161.3p per litre, the highest since November 2022, and a 23% jump in motor fuel costs contributed to the headline figure. This surge is linked to escalating oil prices amid the ongoing conflict in the Middle East.
Despite the headline inflation rate moving further from the Bank of England's 2% target, core inflation and services inflation remained stable at 2.6% and 3.4% respectively. This stability, coupled with signs of a cooling UK jobs market, may allow the Bank of England to hold its benchmark interest rate at 3.75% at its upcoming meeting. However, financial markets are pricing in a one-in-five chance of a quarter-point rate hike.
Chancellor John Healey acknowledged the global impact of the Middle East war on inflation and stated that the government has taken measures to help families and businesses. Economists suggest that the fallout from the conflict could push headline inflation closer to 4%, with some forecasting a peak of 4.5% by mid-2027.