UK Inflation Hits 5-Month High as Bank of England Faces Rate Hike Pressure

The UK's inflation rate has reached its highest level in five months, sparking pressure on the Bank of England to raise interest rates this year. According to official figures from the Office for National Statistics, consumer prices rose to 3.1% in August from 2.9% the previous month.

Rising fuel and airfare costs were major contributors to the increase, which moves inflation further away from the Bank of England's 2% target. Despite this, rate-setters are expected to keep the main interest rate at 3.75%, as a majority of policymakers want to see whether higher prices are feeding into higher wages.

However, experts warn that a hike in rates may still be on the horizon later this year, particularly if inflationary pressures continue. Suren Thiru, chief economist at ICAEW, said that while August's inflation increase is unlikely to trigger a rate hike now, it will 'harden the Bank's hawkish tone' and leave the door open for higher rates.

The Iran war in February has had a lasting impact on oil and gas prices, partly due to the closure of the Strait of Hormuz. This has led to increased interest rate expectations, which are a growing concern for the British government as it tries to balance its debt servicing with public spending.