UK inflation rises above 3% in August, core rate steady

• UK August CPI came in at +3.1% year-on-year, matching the +3.1% expected
• Previous reading was +2.9%
• UK August core CPI was +2.6% year-on-year, also in line with the +2.6% forecast
• Prior core reading was +2.6%

The key figures were all within analysts' expectations. Headline inflation in the UK accelerated in August, moving back above 3% for the first time since March.

Rising energy costs were the main driver, fueled by higher prices for diesel and petrol. To provide some context, diesel prices increased by 14.2 pence per litre in August 2026, compared to a rise of 0.8 pence per litre in the same month a year earlier.

Meanwhile, the average petrol price climbed by 9.1 pence per litre from July to August 2026, versus a 0.3 pence per litre increase over the same period in 2025. The average petrol price reached 161.3 pence per litre in August 2026, the highest level since November 2022.

For the Bank of England, the key indicator is core annual inflation, which held steady at 2.6% in August, matching July's figure. This reading is reinforced by services inflation remaining unchanged at 3.4% in August as well.

Air fares had a smaller-than-expected upward effect, rising only 6.2% from July to August. Many analysts entering the report had predicted the uptick would be sufficient to push services inflation to 3.5% in August.

Overall, the report was largely in line with forecasts. Without a further increase in services inflation, it does not significantly alter the inflation outlook for the BOE ahead of its decision tomorrow.

Evidence of meaningful second-round effects remains scarce. That provides a narrative policymakers can use to keep interest rates unchanged this week. However, it is expected to be a closely contested vote among policymakers, whichever way it goes.