Households across Britain are preparing for further inflationary pressure after official figures revealed that prices are already rising at a faster pace.
Consumer price inflation reached 3.1 per cent in the 12 months to August, compared with 2.9 per cent in July.
The increase matched economists’ forecasts, but experts have warned that inflation could climb further as the worsening Middle East crisis threatens to push up energy costs.
Oil prices have surged, with Brent crude trading at $108 a barrel this morning. Motorists are already facing higher costs, with diesel prices reaching their highest level in four years.
Energy bills could rise by as much as 25 per cent in January, according to estimates, adding to pressure on the Government as it seeks to balance the public finances ahead of next month’s Budget.
Some analysts now expect CPI inflation to reach 4 per cent next year. Financial markets are also forecasting several interest rate rises as the Bank of England attempts to prevent inflation from becoming entrenched.
The Bank’s Monetary Policy Committee, which aims to keep inflation at 2 per cent, will announce its latest interest rate decision tomorrow. Despite the renewed price pressures, it is widely expected to leave rates unchanged at 3.75 per cent.
CPI inflation rose to 3.1 per cent in August, from 2.9 per cent a month earlier
Andy Burnham and John Healey (left) face the challenge of balancing the books ahead of next month’s Budget
Transport costs made the biggest contribution to the annual inflation increase in August
Food prices did not add to the acceleration, offering a small reprieve for consumers
Grant Fitzner, chief economist at the ONS, said the latest increase was driven by steep rises in petrol and diesel prices. He added that airfares, particularly for long-distance international flights, had also pushed inflation higher.
Mr Fitzner said higher crude oil and petrol prices had raised the annual cost of raw materials as well as the prices manufacturers charge when goods leave factories.
Gas prices have also been moving upwards since the ceasefire agreement between the US and Iran broke down on July 8.
One positive development for consumers was that core CPI, which excludes energy, food, alcohol and tobacco, remained unchanged at 2.6 per cent in the year to August.
Mr Healey said: ‘The war in the Middle East is impacting on inflation worldwide, not just here at home. In our bills, our weekly shop and at the petrol pumps.
‘We have taken early action to help families and businesses breathing space, by cutting tax on electricity bills, capping bus fares at £2 and lowering rates for pubs, social clubs and live music venues.
‘Despite this serious global uncertainty, our UK economy is proving resilient, and our determination to deliver and growth in every postcode continues.’
There was a bleak readout for Britain’s jobs market yesterday.
Official figures showed numbers on company payrolls fell by 26,000 last month, and are now down 145,000 over the past year.
Job vacancies tumbled to a fresh five-year low in the three months to August, with around 8,000 fewer advertised compared to the same period in 2025.
Meanwhile, private sector regular wage growth was 2.9 per cent – barely keeping ahead of inflation.
Shadow chancellor Andrew Griffith said: ‘Inflation is now at 3.1 per cent meaning that every family is paying the price for Labour’s choices.
‘Labour’s jobs tax and employment red tape are being passed on to consumers in the weekly shop and their mad energy policies are pushing up costs and leaving Brits exposed.
‘In difficult times, we need a serious government with a plan, not amateurs with a bunch of pet projects.’
Thomas Pugh, chief economist at RSM UK, said: ‘The rise in inflation in August is just the start of a new upward trend as higher energy, food and memory chip prices continue to make their way through supply chains.
‘We now see inflation peaking at almost 4 per cent in early 2027, before gradually dropping back to 2 per cent in 2028.’
Harvir Dhillon, lead economist at the British Retail Consortium, said: ‘Today’s figures highlight the challenging environment retailers face.
‘Headline inflation has increased, with goods such as clothing and accessories seeing marked increases on the month.
‘One bright spot for households was that food inflation remained unchanged, with deals to be had on staple items like olive oil and coffee…
‘Tackling the cost of living is a top priority and retailers continue to do all they can to hold prices down.
‘But until fiscal conditions improve, they will be fighting with one hand tied behind their back. The Autumn Budget is a chance to reset and reduce the cost pressures building up across the industry.’
