UK inflation hits 3.1% in August, a five-month high, ahead of the Bank vote

British consumer prices rose 3.1 percent in the year to August, the Office for National Statistics said on 16 September. That is the highest reading since March and up from 2.9 percent in July. Economists polled by Reuters had put the print at 3.1 percent. The Bank of England, in its July forecast, had looked for 2.8 percent. Sterling slipped after the release. The Bank was due to announce its rate decision the next day, with markets still pricing a hold.

The rise was not broad. Core inflation, which strips out energy, food, alcohol and tobacco, held at 2.6 percent for a fourth month. Services inflation, the line Threadneedle Street watches as a wage proxy, was unchanged at 3.4 percent. Goods inflation rose to 2.7 percent from 2.2 percent. On the month, the headline index was up 0.5 percent, the most in four months, in line with the consensus and faster than July’s 0.3 percent.

Transport did the work. Motor fuels were 6.9 percent higher than a year earlier, against 0.4 percent a year ago. Air fares jumped 6.2 percent on the month, compared with 2.1 percent a year earlier. Transport inflation as a group rose to 4.6 percent from 3.6 percent. The ONS and the Bank both point at the same cause: a renewed climb in energy prices after fighting resumed in the Gulf. Food inflation was little changed, at 1.1 percent in the ONS account used by Reuters and 1.3 percent in some market summaries. Furniture, clothing and footwear ran below last year’s pace and pulled the other way.

The policy problem is the split between the headline and the core. A 3.1 percent headline sits 1.1 points above the 2 percent target. A stable core and stable services rate tell the Monetary Policy Committee that the domestic engine has not re-accelerated. That is why most City desks still expected rates to stay put on 17 September even after the miss against the Bank’s own 2.8 percent forecast. Governor Andrew Bailey has already flagged two other risks that do not show in August’s fuel line: a dry British summer that could lift food later in the year, and the next turn of El Niño.

Households will feel the next energy step in January. The Ofgem price cap resets then. Market notes this week put a possible jump in regulated energy bills around 25 percent if wholesale prices stay where the Gulf fighting has put them. That would feed the January and February CPI prints, not August’s. It is the reason a single 3.1 percent figure does not close the argument inside the Committee.

August’s 3.1 percent is also a five-month high, not a return to the 11.1 percent peak of October 2022. The long average since 1989 is about 2.8 percent. The country has lived through worse. What has changed is the source. Last winter’s bump came from the regulated cap. This one comes from petrol-pump prices tied to a war the United Kingdom is not fighting on the ground and cannot price out of the index.

For the 17 September decision the relevant sentences are these. Core is 2.6 percent. Services are 3.4 percent. Fuel did the headline. The Bank missed its own August call by 0.3 points. None of those lines forces a hike in a single meeting. They do make a cut harder to sell if the January cap reset lands near the top of the range now being discussed.

The next CPI release is due on 21 October and will cover September. Forecasters already have a higher number in their models. The political calendar will have moved by then. The economic one will still be running on Gulf crude and the Ofgem formula.