UK Inflation Hits Five-Month High Ahead of BOE Rate Decision

UK inflation rose to its highest level in five months before the Bank of England's interest-rate decision. Consumer prices increased by 3.1% in the year through August, surpassing March's rate and up from 2.9% the previous month.

The acceleration was driven by higher motor fuel prices due to the ongoing war in Iran, as well as rising air fares during the summer holidays. Domestic pressures remain subdued but are expected to intensify in the coming months.

Services inflation remained at 3.4% in August, while core inflation, which excludes energy, food, alcohol, and tobacco, was unchanged at 2.6%. BOE officials meeting this week are expected to keep rates unchanged as a weak labour market has helped contain price pressures from the Middle East conflict so far.

However, that stance is becoming increasingly difficult to maintain as the war drags on. UK drivers now face the most expensive diesel and petrol costs since 2022, while oil prices are above US$100 a barrel.