UK Inflation Hits 3.1% in August — a Five-Month High Driven Almost Entirely by Fuel Prices

UK inflation accelerated to 3.1% in the year to August, the Office for National Statistics confirmed this morning — its highest reading in five months, up from 2.9% in July, and landing exactly in line with what economists had forecast. The headline number lands the day before the Bank of England's Monetary Policy Committee delivers its next rate decision, and the timing has sharpened what was already shaping up to be a genuinely live debate about which direction UK interest rates go next.

The rise was concentrated almost entirely in one place: transport. Transport cost inflation jumped to 4.6% from 3.6% in July, and motor fuel specifically was the dominant driver — petrol rose 9.1 pence a litre over the month to 161.3p, while diesel climbed 14.2p to 181.8p, pushing motor fuel inflation up sharply to 23.0% from 15.5%. Smaller upward contributions came from housing and household services, communication, and recreation and culture, but none of these moved anywhere near as much as fuel.

What didn't move is arguably the more important part of this release. Core inflation — which strips out food and energy specifically to give a cleaner read on underlying price pressure — held completely flat at 2.6%, exactly where it sat in July. Services inflation, the measure the Bank of England watches most closely as the clearest signal of domestically-generated price pressure, was also unchanged, at 3.4%. Food price inflation held steady too, at 1.3%. A headline number rising by 0.2 percentage points while every one of the underlying measures stays completely flat is about as clean a signal as this kind of data ever gives: the August jump was a fuel price story, not evidence that inflation is broadening back out across the economy.

That distinction matters directly for how the Bank of England is likely to read this release ahead of tomorrow's decision. A committee genuinely worried about broadening inflation would read a 3.1% headline print as a reason for caution regardless of what sits underneath it. A committee focused on core and services measures — which is generally how the Bank has framed its own thinking through 2026 — has considerably less reason to treat this specific release as new information requiring an immediate response, since the categories it watches most closely didn't move at all.

Even so, the broader direction of travel in rate expectations has shifted meaningfully in recent weeks, and this release adds to rather than resolves that shift. The Bank's Monetary Policy Committee voted 6-3 to hold at 3.75% at its July meeting, with three members — Megan Greene, Catherine Mann and Huw Pill — preferring a hike to 4% even then. Since that vote, July's GDP figures came in well ahead of expectations, growing 0.4% against a forecast of no growth at all, and gilt yields have climbed to multi-decade highs on renewed inflation and energy concerns. Taken together, several market analysts now see a rate hike to 4% before the end of the year as a live possibility, a striking reversal from the cutting cycle markets had spent most of 2026 pricing in.

None of this makes tomorrow's specific decision a foregone conclusion, and it's worth being careful about that distinction. A single fuel-driven headline print, sitting alongside unchanged core and services measures, is not on its own the kind of evidence that typically moves a committee already inclined to hold. What it does do is add another data point supporting the camp already arguing for tighter policy, at a moment when the committee's own July vote showed genuine, three-way internal disagreement about which way the balance of risks was already tilting.

For households, the immediate story is straightforward regardless of what the Bank decides tomorrow: fuel costs are up sharply, and that's the specific pressure showing up at the pump and, to a lesser extent, in a handful of other categories — not a broad-based return to the kind of inflation seen through 2022 and 2023. Separately, Ofgem's energy price cap is set to rise a further 4% in October, lifting the typical annual dual-fuel bill to around £1,723 from £1,663, a cost pressure that will show up in next month's data regardless of what happens with interest rates in the meantime.