Higher fuel costs helped push annual UK inflation to 3.1% in August, up from July’s 2.9%, Office for National Statistics figures showed. Economists had anticipated the increase, which took the headline measure above 3% for the first time since March.
The result widened the gap between inflation and the Bank of England’s 2% goal. It also exceeded the central bank’s July projection of 2.8% for August, although measures less directly exposed to rising energy costs showed no acceleration.
Core inflation, which leaves out volatile categories including food and fuel, registered 2.6%, extending its run at that level to four months. Services inflation also stayed at 3.4%. The BoE closely monitors services prices for evidence of wage-related pressures and inflation that could persist over a longer period.
Those underlying indicators are likely to receive greater attention from policymakers than the stronger-than-forecast headline figure as energy price increases affect them less immediately.
Disruption to world oil supplies from the continuing Middle East conflict drove a sharp increase in fuel bills during August. Across petrol and diesel, prices were 23% higher than a year earlier.
ONS figures put the monthly increase in average petrol prices at 9.1 pence a litre, bringing them to their highest level since November 2022. Diesel recorded an even larger rise, with its average price increasing by 14.2 pence a litre during August.
Air travel also became more expensive during a major month for summer holidays, adding to the price increases recorded alongside the surge in road fuel costs.
Ahead of Thursday’s BoE decision, investors assign roughly a one-in-three probability to a quarter-percentage-point rate increase. Market pricing nevertheless fully incorporates two increases by the end of 2026, reflecting concern that higher energy costs could spread into a broader range of prices.
The BoE held policy rates steady at 3.75% in the July meeting, a move that was in line with analysts’ expectations. However, the central bank officials noted that they are ready to act based on the development in the Middle East.
