UK Inflation Holds at 3.8% in August 2025

The UK Consumer Price Index (CPI) remained steady at 3.8% in August 2025, matching July’s rate and aligning with analysts’ forecasts. Core inflation, which excludes volatile items like energy, food, and tobacco, edged slightly lower to 3.6%. On a monthly basis, prices increased by 0.3%, consistent with the previous month.

Despite headline stability, underlying inflation pressures are apparent. Food prices surged by 5.1% year-over-year, the fastest increase since January 2024, driven by climate-related disruptions and higher production costs.

Key Factors Driving UK Inflation

Rising costs in food, fuel, and services continue to push inflation in the UK. Food and beverage prices saw notable hikes in vegetables, cheese, and fish. Fuel prices also contributed to upward pressure, though airfares increased less sharply, moderating overall price growth.

These inflation trends reflect broader supply chain pressures and consumer cost-of-living concerns, factors that economists say will shape the Bank of England’s monetary decisions in the coming months.

Bank of England Interest Rate Outlook

The Bank of England (BoE) is expected to keep its benchmark interest rate at 4% in its upcoming policy meeting after a 25 basis point cut in August. Persistent inflation, coupled with strong wage growth—basic pay rose by 4.8%—limits the central bank’s room to ease monetary policy.

BoE forecasts suggest inflation may reach 4% in September and remain above the 2% target until spring 2027, keeping rate decisions under close scrutiny by investors and market analysts.

UK Economic Growth Slows

Economic data shows the UK economy expanded just 0.2% in the three months to July, slowing from 0.7% growth earlier in the year. Experts attribute this slowdown to rising taxes and global trade tensions, particularly with the United States.

Rising Inflation Expectations Among Consumers

Longer-term inflation expectations are at their highest levels since 2019, reflecting public concerns over the cost of living and the effectiveness of monetary policy. Consumer sentiment and spending patterns may influence inflation outcomes in the coming months.

What to Watch Next

As inflation remains above the Bank of England’s target, policymakers face a delicate balancing act between supporting economic growth and containing rising prices. Markets and consumers alike will closely monitor BoE decisions on interest rates, wage growth trends, and sector-specific price pressures.

The coming months will reveal whether inflationary pressures stabilize or escalate, shaping the outlook for the UK economy into 2026.