UK Inflation May Not Be as Bad as It Looks, But Mortgage Markets Are Pricing in More Rate Rises

The UK's inflation rate rose to 3.1% in August, but the actual story may be more nuanced than it seems.

Energy prices played a significant role in the increase, which is heavily influenced by the price of fuel and transport costs.

However, core inflation, which excludes volatile categories like food and energy, remained steady at 2.6% for the last four months.

This measure is designed to show the underlying level of inflation in the economy, providing a clearer picture than headline figures.

The Bank of England's Monetary Policy Committee can't directly influence energy prices, which are affected by global events like the Strait of Hormuz closure and El Niño droughts.

Service price inflation has also stabilized at 3.4%, while wage growth fell to 3.9% from 4.2%.

This may be a relief for the economy, but mortgage markets are pricing in four rate rises, which could increase borrowing costs and make it harder for people to get mortgages.