BoE Faces Challenge as UK Inflation Hits Highest Level Since December

UK inflation rose to 3.1% year-on-year in August, its highest since December last year, according to Deutsche Bank's Sanjay Raja.

Raja notes that energy prices contributed significantly to this increase, with pump prices rising by 7% month-over-month and heating oil prices increasing by 13% m/m.

Services price momentum is also showing worrying trends, with private rents seeing their biggest monthly jump since November 2024 at 0.49% m/m and catering prices jumping by its highest rate since February this year at 0.45% m/m.

In contrast to the Bank of England's projections, inflation momentum is running hotter than expected, with headline CPI now 0.25pp above the Bank's forecast.