UK inflation rises to 3.1% as fuel costs climb
Higher petrol, diesel and airfare costs push inflation further above the Bank of England's target
UK inflation rose again in August, with higher fuel and travel costs putting further pressure on household and business finances.
According to the Office for National Statistics (ONS), inflation reached 3.1% in the year to August, up from 2.9% in July, driven largely by rising petrol, diesel and airfare costs.
For businesses and households that had been hoping inflationary pressures were continuing to ease, the latest figures are a reminder that costs can change direction fairly quickly.
Fuel prices rise sharply
Petrol prices reached their highest level in almost four years during August.
The average cost of a litre of petrol increased by 9.1p to 161.3p between July and August, the highest level recorded since November 2022.
Diesel prices also rose sharply, while overall motor fuel costs were 23% higher than in the same month last year.
The increases follow continued disruption to global oil supplies linked to conflict in the Middle East. Oil prices rose above $91 a barrel, compared with around $73 before hostilities began, and have since moved above $100 a barrel.
For businesses reliant on vehicles, deliveries or transport, those increases can quickly feed through into day-to-day operating costs.
Food inflation remains steady – for now
Food and drink price inflation remained unchanged at 1.3%.
That suggests the higher energy costs have yet to filter through significantly into other sectors, although businesses will naturally be watching closely to see whether that changes over the coming months.
Rising energy and transport costs don't necessarily stay confined to the petrol station. They can increase the cost of producing and moving goods, which can eventually affect prices elsewhere.
What could happen to interest rates?
The latest increase takes inflation further away from the Bank of England's 2% target.
At its September meeting, the Bank's Monetary Policy Committee voted 6–3 to keep interest rates at 3.75%, with three members instead voting for an increase to 4%.
Some economists believe inflation could reach around 4.1% by the end of the year as businesses continue passing higher energy costs on.
Paul Dales, chief UK economist at Capital Economics, summed up the expectation rather simply: "Everyone knows that bigger rises in inflation are on their way."
What about the wider economy?
There was some more positive news in the latest economic figures.
The UK economy grew by 0.4% in July, supported by investment in artificial intelligence, although growth had slowed during the second quarter.
Taken together, the figures give us a fairly mixed picture. The economy is growing, but businesses and households are once again dealing with increasing inflation and significantly higher fuel costs.
For business owners, that's another reason to keep a close eye on margins, cashflow and pricing rather than simply looking at turnover.
Final thoughts
A rise from 2.9% to 3.1% might not sound dramatic in isolation, but the underlying increases in fuel and energy costs are worth watching.
Businesses with significant transport, delivery or energy costs may feel the impact particularly quickly, while further increases could eventually feed through into supplier prices and other overheads.
You can't control inflation or global oil prices, but you can understand what rising costs are doing to your own numbers.
Regularly reviewing costs, margins and cashflow can help you spot pressure early and decide whether prices, budgets or plans need to change.
If you'd like to discuss what rising costs could mean for your business or personal finances, I'm always happy to have a straightforward conversation.
