UK Inflation Rises to 3.1% as Bank of England Weighs Rate Decision

UK inflation rose to a five month high of 3.1% in August, up from 2.9% in July, according to official figures released on Wednesday.

The increase matched the median forecast of economists surveyed by Reuters and came a day before the Bank of England is expected to keep interest rates unchanged.

The rise was driven partly by higher energy prices following the resumption of conflict in the Gulf. The Bank of England had previously forecast that annual inflation would reach 2.8% in August.

Sterling weakened slightly after the inflation figures were released. However, policymakers are expected to focus closely on underlying price pressures, which are less immediately affected by energy costs.

The Office for National Statistics said core inflation, which excludes volatile items including food and energy, remained at 2.6% for the fourth consecutive month. Services inflation, another key measure watched by the Bank of England because of its link to wages and longer term price pressures, also held steady at 3.4%.

Separate data released on Tuesday showed wage growth remained near its weakest level since 2020. Financial markets currently see about a one in three chance of a 0.25 percentage point rate increase on Thursday, while two rate increases are fully priced in before the end of 2026.

Goldman Sachs expects UK inflation to peak at 3.9% in early 2027, which could increase concerns about persistent inflation. Britain’s economy also recorded the strongest growth among the Group of Seven economies during the first half of 2026, potentially adding to price pressures.