The UK's annual inflation rate rose to 3.1% in August, up from 2.9% the previous month, according to the Office for National Statistics (ONS). This marks the highest level of inflation recorded in five months, largely attributed to the impact of the ongoing conflict in the Middle East on global oil supplies.

Motor fuel costs saw a significant increase, rising 23% compared to August of last year. Average petrol prices reached 161.3p per litre, a level not seen since November 2022. The ONS noted that these rising crude oil and petrol costs have also influenced the prices of goods leaving factories. While fuel and air travel costs spiked, inflation for food and drink remained steady at 1.3%.

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Economists are projecting further inflationary pressure in the coming months. Paul Dales, chief UK economist at Capital Economics, anticipates that inflation could peak at 4.2% in January as businesses pass on higher energy costs to consumers. Meanwhile, the Bank of England is scheduled to meet on Thursday to determine potential adjustments to interest rates, which currently sit at 3.75%.

The government faces pressure to address the rising cost of living. Prime Minister Andy Burnham described the situation as a concern, noting that the inflationary pressure is largely driven by external geopolitical factors. In response to energy costs, the government plans to eliminate VAT on household electricity bills starting October 1, though this will coincide with a 4% increase in the energy price cap. KPMG chief economist Yael Selfin warned that these measures may only partially offset the impact of rising gas prices on households.

Source: BBC News