Inflation remained at 3.8 per cent in August, staying at its highest level since January 2024.
The Consumer Prices Index (CPI) has risen steadily since its three-year low of 1.7 per cent in September 2024, and now sits at almost double the Bank of England’s 2 per cent target.
The central bank had previously forecast inflation would peak at 3.7 per cent in September, but there are concerns it is proving stickier than anticipated.
CPI has sat above the Bank of England’s target since October, despite forecasts that it might stay static or even fall further.
The headline rate remains at January 2024 levels, with core inflation at 3.8 per cent, while services inflation slowed from 5 per cent to 4.7 per cent.
What do the latest inflation figures mean for you, where does this leave the Bank of England on interest rate hikes, and will inflation stay at a higher rate? We look at all this and more.
Weekly shop: High inflation has hit our household bills in recent years, from energy to food
What’s the latest on inflation?
The headline inflation rate, at 3.8 per cent, stayed unchanged from July and is nearly double the Bank of England’s 2 per cent target.
Core inflation – which excludes volatile items like food, energy and alcohol – rose by 4 per cent in the 12 months to August 2025, down from 4.2 per cent in the year to July, while core services inflation slowed from 5.2 per cent to 4.9 per cent.
Airfares coming down after a spike the previous month helped offset petrol and diesel prices rising in August, the Office for National Statistics said.
The cost of hotel accommodation fell by less than this time last year.
The rate of food and drink inflation rose to 5.1 per cent in August, from 4.9 per cent in July, as shoppers continued to face higher prices for items at the checkouts. Food inflation rose to its highest level for 18 months.
There were small increases in a range of vegetables, cheese and fish products, the ONS said. The price of chocolate increased by 15.4 per cent, while the cost of beef, butter and coffee also increased sharply.
Chancellor Rachel Reeves said: ‘I know families are finding it tough and that for many the economy feels stuck. That’s why I’m determined to bring costs down and support people who are facing higher bills.’
Shadow chancellor Sir Mel Stride said price growth was ‘deeply worrying for families’ and claimed Labour’s tax policies were ‘stoking inflation’.
What does the inflation rate mean for you?
Consumer prices inflation, known as CPI, measures the average change in the cost of consumer goods and services purchased in Britain, with the ONS monitoring a basket of goods representative of UK consumers.
Monthly change figures are given but the key measure that is watched is the annual rate of inflation. The Bank of England has a target to keep this at 2 per cent.
An inflation spike has hit over the last two years or so, with the CPI rate peaking in October 2022 at 11.1 per cent.
Higher inflation means the rate of increase in the cost of living is increasing.
Any decline in the inflation rate is to be celebrated though, as it increases the chance of wages, investment returns and savings interest matching or beating inflation – delivering a real increase in people’s wealth.
> The best inflation-fighting savings deals
The main measure by which the Bank of England seeks to control inflation is interest rate rises. Higher inflation decreases the chance of base rate cuts and increases expectations of how high rates will go.
Expectations that the Bank of England would have to keep raising rates to combat inflation have sent mortgage rates spiralling costing mortgaged homeowners dear.
> How much would a mortgage cost you? Check the best rates
Will inflation fall again?
The pace of price rises in August matched the inflation rate in July and remains above the 3.7 per cent peak the Bank of England had expected in September.
It also comes soon after the Monetary Policy Committee voted to cut interest rates to 4 per cent.
That inflation continues to be higher than the Bank of England’s target isn’t great news for households, but the main concern is whether it is a one-off or marks the start of another period of sustained higher inflation.
That services inflation remains sticky will worry the central bank, particularly as US trade policy may start to affect the data.
Victoria Scholar, head of investment at Interactive Investor, said: ‘Inflation is likely to push higher in next month’s reading before starting to pull back.
‘Elevated inflation makes it harder for the central bank to continue on its monetary loosening path, raising the likelihood of a higher-for-longer interest rate environment which could have negative effects on borrowing and the housing market.’
Will the Bank of England cut rates again?
The Bank of England cut the base rate to 4 per cent in August, but as CPI proves stickier than anticipated, it is unlikely it will cut rates any time soon.
Laith Khalaf, head of investment analysis at AJ Bell, said: ‘The UK has an inflation problem which is keeping the Bank of England in cautious mode on interest rates.
‘While inflation is nowhere near as bad as it was, prices are still rising at an uncomfortable pace, so there is waning expectation of a rate cut at any point this year.
‘As things stand, the market currently only assigns a one in three chance to the possibility of an interest rate cut by the end of the year (based on Refinitiv data).’
Grim faces: The Bank of England may press pause on rate cuts after CPI reading
Rob Wood, chief UK economist at Pantheon anticipates inflation will ‘stay miles above target for the foreseeable future; we expect headline inflation to remain above 3 per cent until April 2026, forcing the MPC to stay on hold for the rest of this year at least.’
What does it mean for your savings?
Inflation means the value of interest earned on savings and investments falls in real terms.
If inflation deters the Bank from cutting its base rate again, then there is a silver lining for savers as rates will remain at a higher level.
However, rising prices erode the real value of people’s savings.
Alice Haine, a personal finance analyst at Bestinvest, said: ‘Stubborn inflation is no boon for savers either.
‘Savings rates have eased back over the past year and while a flat rate may slow the pace at which those top deals disappear – assuming further interest rate cuts get delayed – the downside is that high inflation erodes the real value of returns.
‘With savings rates on a general downwards path, shopping around for the best deals available is imperative for those hoping for an inflation-beating return with some of the best deals remaining competitive compared to the long era of rock-bottom rates in the run-up to the pandemic.’
> Check the best savings rates in This Is Money’s independent tables
What does it mean for your mortgage?
Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, said: ‘While inflation holding means we’re still some way from the 2 per cent target, it suggests that the bumpy ride may be leveling out.
‘It’s widely believed that we’re nearing the peak, and this result supports the idea that a gradual decline is on the horizon.
‘We know that these rising costs can make saving feel impossible. Our latest research confirms this, showing that 56 per cent of renters see saving for a deposit as the biggest hurdle to homeownership.
‘The good news is the days of needing a massive deposit are behind us. Thanks to increased borrowing power and the greater range of innovative products available, now is an excellent time to explore your options.’
He added: ‘Hopes of another base rate cut this year now look decidedly optimistic. The mortgage swaps market, which tracks interest rate expectations and is used by mortgage lenders to determine the fixed interest rates they offer to borrowers, had been suggesting that the next base rate cut might come in November.’
> Compare the best mortgage rates based on your home’s value and loan size
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