UK inflation reaches 3.1%, with stable underlying measures providing some relief to the Bank of England

UK inflation increased to 3.1% in August, although stable core and services measures provide some comfort to Bank of England policymakers.

British inflation rose to a five-month high of 3.1% in August, propelled by increased fuel prices and airfares, according to official figures released on Wednesday.

The increase in the annual headline inflation rate aligned with economists’ predictions, and elevated global energy prices are anticipated to exert additional pressure on prices in the months ahead.

Domestic energy bills may rise as they respond to elevated global market prices, albeit with a delay.

In August, significant rises in petrol and diesel prices pushed inflation up once more. “Rising airfares, particularly on long-haul routes, contributed to the increase,” stated Grant Fitzner, chief economist at the Office for National Statistics.

“Increased crude oil and petrol prices have led to a rise in the annual cost of raw materials and the prices of goods exiting factories, respectively.”

The figures contribute to the difficulties confronting the government as it aims to alleviate the cost of living strain while getting ready for its budget on October 28.

Finance Minister John Healey stated that the effects of the conflict in the Middle East are being experienced through increased household bills, grocery prices, and fuel costs.

Despite headline inflation exceeding the projections set by the Bank of England in its July forecasts, it is anticipated that policymakers will pay careful attention to the fundamental indicators of price growth.

The ONS reported that core inflation, which omits volatile elements like food and energy, held steady at 2.6% for the fourth month in a row in August.


Services inflation, an important indicator of wage growth and ongoing price pressures that the BoE closely monitors, remained stable at 3.4%.

“Considering the limited evidence of second-round effects thus far, we expect that the MPC will maintain current rates in tomorrow's meeting,” stated Charlotte O’Leary, associate economist at the National Institute of Economic and Social Research.

Data released by ONS on Tuesday indicated that wage growth has stayed near its lowest level since 2020, implying a potential reduction in domestic inflationary pressures.

O’Leary noted that ongoing inflationary pressures and strong economic growth might provide policymakers the opportunity to increase interest rates without significantly harming the economy.

Sterling experienced a minor decline following the release of inflation figures, as investors evaluated the future trajectory of interest rates.

Markets estimated a nearly 20% likelihood of a quarter-point rate increase at Thursday’s BoE meeting, while investors perceived a 75% probability of two rate hikes occurring before the conclusion of 2026.

Goldman Sachs projected that Britain’s headline inflation rate would reach a peak of 3.9% in early 2027, highlighting worries that rising energy costs might contribute to wider price pressures.

Britain’s economy experienced growth at a pace surpassing that of the other Group of Seven nations during the first half of 2026, which may contribute to inflationary pressures.

Data on producer prices indicated an increase in costs for manufacturers. Output prices rose by 3.7% year on year in August, up from a revised 3.3% in July, while input prices rose by 6.1%.