UK inflation remained unchanged at 3.8% in August, according to official figures, maintaining pressure on households as the Bank of England is widely expected to keep interest rates at 4% this week. The Office for National Statistics reported that the consumer prices index held steady, matching City forecasts, with rising fuel costs offsetting lower air fares.
Food price inflation climbed for a fifth consecutive month to 5.1%, with notable increases in chocolate (15.4%), beef, butter, and coffee. Core inflation, excluding energy, food, and tobacco, fell to 3.6%, while services inflation slowed to 4.7%. The Bank forecasts inflation could peak at 4%, potentially delaying further rate cuts.
Chancellor Rachel Reeves faces intense scrutiny ahead of her autumn budget, expected on 26 November, amid widespread speculation about tax increases. Business groups warned that measures including a £25bn rise in employer national insurance would force job cuts and price rises. Shadow chancellor Mel Stride accused Labour of mismanagement, saying working people face more tax rises.
Reeves acknowledged the pressure on families, stating the government is determined to bring costs down. The Trades Union Congress urged the Bank to cut rates, arguing high borrowing costs add to pain for families and businesses without addressing global price pressures.
UK inflation remains the highest in the G7, outpacing the US rate of 2.9%. The Bank has cut rates five times since summer 2024, but stubborn inflation and a cooling labour market present a delicate balance for policymakers.
