UK Inflation Rises to 3.1% as Fuel Prices Soar
UK inflation increased to 3.1% in August, driven by soaring motor fuel costs, putting pressure on the Bank of England ahead of its interest rate decision.
UK inflation rose to 3.1% in August, up from 2.9% the previous month. The Office for National Statistics reported the increase was driven by motor fuel prices rising by almost a quarter.
Soaring fuel and transport costs, triggered by the Iran war, are heaping renewed pressure on British households. The figures matched City forecasts.
Bank of England Under Pressure
This places the Bank of England in a critical position as it prepares for an interest rate decision. Headline inflation is drifting further from its 2% target. Financial markets now predict a one-in-five chance of a quarter-point rise from the current level of 3.75%. The City expects as many as four increases to 4.75% by the end of next year.
Economists noted that UK core inflation remained unchanged in August. They saw signs that underlying inflation remained in check amid a cooling jobs market. However, they warned the fallout from war in the Middle East could push the headline rate close to 4%.
Diverging UK Property Market
The UK property market showed a split picture. While national prices saw modest growth, London's market continued to decline.
| Region | Average Price (July) | Annual Change | Notes |
|---|---|---|---|
| London | £569,000 | -3.3% | 11th consecutive drop; £19,000 below July 2025 peak |
| England | £293,000 | +1.1% | Up £3,000 year-on-year |
The ONS reported that Inner London was particularly affected. The average house price in London is now £19,000 below its recent peak in July 2025.
Calls for Rent Controls
Rising rents are adding to the cost-of-living squeeze. The Green party is calling for rent controls to protect UK tenants. Green MP Hannah Spencer argued that morning data showing rents rising at the fastest rate this year demands government action.
"The latest ONS figures show how completely broken the private rented sector is," Spencer said. She highlighted the fastest rent rises in the North West and North East, at 5.8%, transferring hundreds of pounds more from stretched families to landlords.
Property website Zoopla reported earlier in the week that the number of homes for rent has dropped by 3% compared with a year ago.
Global Economic Snapshots
The source report also contained several other economic updates. US retail sales rose by 1.2% in August, the most in five months, suggesting American consumers are not cutting back despite higher energy prices. The figures are not adjusted for price changes.
US mortgage rates climbed to their highest level in more than a year. The 30-year mortgage rate rose 12 basis points to 6.97%, the highest since May 2025. Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, cited market concerns over spiking energy prices and persistently high inflation.
In the UK, supermarket chain Morrisons reported its strongest sales growth for more than a year. Like-for-like sales rose by 3.2% in the 13 weeks to 26 July, its fifteenth consecutive quarter of growth. Boss Rami Baitieh said the group's trading was "robust" and surpassed the wider UK grocery market after investment into improving pricing.
PwC UK's revenues fell for the first time in over a decade, slipping by 3% to £6.2bn. A 15% drop in its Middle East business offset a 2% rise in the UK. Despite the overall revenue drop, profit per partner rose 8% to £935,000. Data provider MoneyFacts reported that the average five-year fixed mortgage rate in the UK has risen to its highest level since November 2023.
