UK inflation remained steady at 3.8% in August, with a notable increase in food prices. This matches the inflation rate reported in July. The Office for National Statistics (ONS) provides monthly inflation updates and highlighted a continuous rise in food prices, particularly for items like cheese, fish, and vegetables.
Food price inflation reached 5.1% in the year leading to August, marking the highest level in 18 months. Additionally, fuel prices saw an increase, while hotel costs decreased less compared to the same period last year. However, the rise in prices was balanced by a slower increase in airfares compared to the previous year.
The latest inflation data precedes the upcoming announcement by the Bank of England on interest rates. Most economists anticipate that the base rate will remain unchanged at 4% due to persistent inflation, a weakened job market, and the forthcoming Autumn Budget.
The Bank of England aims for 2% inflation and has gradually reduced the base rate from its peak of 5.25% to the current level of 4% through five rate cuts. Grant Fitzner, the ONS chief economist, noted that while annual inflation remained stable in August, various price movements offset each other. Airfares contributed to a downward trend in prices, while fuel costs and hotel accommodation prices showed an increase.
Chancellor Rachel Reeves acknowledged the financial challenges faced by families and emphasized the government’s efforts to lower costs and support those grappling with higher expenses through initiatives like raising the National Living Wage and expanding benefits like free school meals. In contrast, Shadow Chancellor Sir Mel Stride expressed concern over inflation surpassing the 2% target for the 11th consecutive month, attributing it to policies that he believes are escalating costs for essential items.
Inflation reflects changes in the prices of goods and services over time, typically measured by the Consumer Price Index (CPI). The ONS determines inflation based on a basket of goods and services that represent consumer spending habits. A lower inflation rate does not signify a halt in price increases but rather indicates a slower rate of ascent. For instance, a 3% inflation rate implies that an item costing £1 a year ago would now cost £1.03.
The Bank of England adjusted interest rates over an extended period to manage inflation towards the 2% target. The base rate impacts borrowing costs, influencing consumer spending and overall demand in the economy. While a higher base rate can curb inflation by constraining spending, it can also strain homeowners through increased mortgage payments. The base rate currently stands at 4%, down from its peak of 5.25% in 2023 after multiple rate cuts.
Inflation surged in 2021, peaking at 11.1% in October 2022, primarily driven by rising energy and food prices. The demand for energy escalated post-Covid and was further exacerbated by the conflict in Ukraine, leading to elevated food prices due to increased expenses in production inputs like fertilizers and animal feed.
Following a low of 1.7% in September 2024, inflation began to rise again in October, signaling a potential upward trend. Subscribe to the Mirror Money newsletter for exclusive money-saving tips and deals directly in your inbox.