A customer refuels his car at a gas station as Brent crude oil prices hit $100 per barrel for the first time since May in London, England, July 23, 2026.
Leon Neal | Getty Images News | Getty Images
Britain’s annual inflation rate rose to 3.1% in August due to higher petrol and diesel prices.
The report was in line with economists’ expectations, with inflation rising above 3% for the first time since March.
The country’s Office for National Statistics (ONS) said the main cause of the hike was a rise in motor fuel costs, which rose 23% year-on-year.
UK petrol prices hit highest since 2022
The average price of petrol rose by 9.1p ($0.12) per liter between July and August, the ONS said, making the average price the highest since November 2022. Meanwhile, the average price of diesel rose by 14.2p per liter in August.
Inflation rose to 2.9% in July due to a significant upward revision to the government-regulated price cap on energy costs.
With crude oil prices hovering above $100 per barrel, prices continue to rise. British car industry body RAC announced earlier this week that petrol and diesel prices have soared since the start of the Iran war, with prices for both fuels now at prices not seen in four years.
As a net energy importer, the UK is particularly vulnerable to external energy shocks. The country’s inflation rate rose to 2.9% in July after a sharp upward revision to the government-regulated price cap on energy costs.
The cost of electricity, gas and other household fuels rose 6% in August compared to a year earlier, the ONS said on Wednesday.
Britain is still grappling with a cost-of-living crisis caused by post-pandemic inflation and rising energy costs in the wake of Russia’s full-scale invasion of Ukraine in 2022.
A person shelters from the rain while walking near the Bank of England building on the day the Monetary Policy Committee lowered interest rates on December 18, 2025 in London, England.
Toby Melville | Reuters
Yields on British bonds, known as British bonds, fell across the curve following Wednesday’s inflation data. yield of 30 year gold coin It rose to a 28-year high on Tuesday, but was last seen almost 2 basis points lower at 5.907%. benchmark 10 pension The yield fell nearly 3 basis points to 5.365%.
of british pound It was also flat against the US dollar. EUR.
The report on inflation came before the Bank of England Monetary Policy Committee announced its latest policy update on Thursday. According to LSEG data, the market has priced in more than an 80% chance that the central bank will keep its key interest rate unchanged at 3.75%, but expects a rate hike at its next meeting in November.
Andy Burnham’s Balance Act
Rising prices are also increasing pressure on new chancellor Andy Burnham, who has promised to tackle the cost of living but is also tasked with balancing the public books and calming bond markets.
“There is nothing in the latest UK inflation figures that calls for a rate hike,” James Smith, developed markets economist at ING, said in a note on Wednesday morning.
“The question is whether the energy shock is spreading to other parts of the inflation basket, and there is little sign that this is happening,” he said.
Smith noted that food and non-alcoholic beverage inflation fell to 1.1% year-on-year in August.
He said: “It’s a similar story when looking at goods and services previously defined by the Office for National Statistics as ‘high’ or ‘very high’ energy intensive.”
“This covers everything from fruit to airfare to canteens. Even after removing distortions from last year’s water and car tax hikes, inflation in these energy-intensive categories has actually fallen this year. There was no sign of that changing in August.”
Bogdan Thoma, a partner at McKinsey & Company, said in an email that gasoline prices at their highest levels in nearly four years could signal a “golden quarter” of uncertainty for consumers and retailers.
“Demand may remain weak into the fourth quarter as households absorb back-to-school costs and face the possibility of higher interest rates,” he said.
“For many non-food retailers and some food retailers, the ‘golden period’ is critical to annual revenue. Competition for fewer and smaller baskets could be particularly intense this year, potentially squeezing retailers’ margins from an already tight starting point.”
Bank of England is ‘unlikely’ to raise interest rates due to inflation
Scott Gardner, investment strategist at JPMorgan Personal Investing, said in a note that while rising inflation is “still unlikely to convince the Bank of England to raise interest rates,” it could raise new concerns among policymakers about the inflation outlook.
He added: “Although the conflict between the US and Iran began more than six months ago, rising energy costs are still spilling over into business input prices and household spending.”
“While core and services inflation was relatively resilient in August, industry research suggests that businesses are facing new cost pressures, particularly in the manufacturing and services sectors. Wage growth has slowed in the private sector and the UK labor market remains weak, which could weigh on consumer spending in coming months.”
Gardner added that his team is closely monitoring the impact of potential second and third rounds due to higher costs across the economy.
“Food prices have started to rise following the rise in fertilizer prices earlier this year, but other pressures could arise if companies decide to pass on higher costs,” he said.
“AI is also an important but often overlooked factor in the inflation landscape as demand for metals, semiconductors and other supply chain goods increases. For now, it is too early to tell whether higher energy prices are turning into a broader inflation shock, but concerns will grow, with much still dependent on the period of Middle East wars.”
