British inflation jumps in August but unchanged core CPI partially offsets negative impact

British inflation rose to 3.1% in August and hit the highest in five months, from 2.9% previous month and coming in line with expectations.

Monthly Consumer Price Index jumped to 0.5% from 0.3% in July, with both headline rates primarily showing impact from escalation of the war in the Middle East and rise in energy prices.

On the other hand, core inflation, excluding the most volatile energy and food components, was unchanged at 2.6%, providing slight relief just a day ahead of the Bank of England policy meeting, where the central bank is widely expected to keep interest rates on hold.

Also, inflation in Britain’s services sector, which reflects wage growth and is closely watched by the central bank for longer-term inflation pressures, was also unchanged at 3.4% last month.

Economists remain cautious and expect further increase in inflationary pressure on domino effect from high oil prices that would eventually hit consumers and the households, with higher inflation also causing problems to top Britain’s officials, who have offered voters some support with the cost of living but whose options in a budget plan due on October 28 are limited by the weak state of the public finances.

Although the BoE is likely to stay on hold in September’s policy meeting, economists see high chances that two rate hikes will take place before the end of 2026, reflecting concerns about the risk of the jump in energy costs pushing up prices more broadly, and expect inflation rate to peak at 3.9% in early 2027.