Published by Global Banking & Finance Review®
Posted on September 17, 2025
3 min readLast updated: January 21, 2026
Add as preferred source on GoogleUK inflation reached 3.8% in August, driven by food prices, impacting economic policies and surpassing US and euro zone rates.
By Suban Abdulla and William Schomberg
LONDON (Reuters) - British inflation in August held at 3.8%, official data showed on Wednesday, the highest among major advanced economies and reinforcing expectations that the Bank of England will not cut interest rates until next year.
The rise in food prices - which the BoE sees as key for shaping public inflation expectations - was the sharpest since January last year and offset a drop in airline fares, the Office for National Statistics said.
James Smith, research director at the Resolution Foundation think tank, said headline inflation remained uncomfortably high and households would feel the impact of higher food prices.
"The chancellor should look to ease the cost of living pressures on struggling families at the budget in November," Smith said.
Food and non-alcoholic drinks prices were 5.1% higher in August than a year earlier, after a 4.9% rise in July.
Last month, longer-term inflation expectations among the public rose to the highest since 2019.
'HIGHER BILLS'
Finance minister Rachel Reeves said she was determined to "bring costs down and support people who are facing higher bills."
Inflation for services - closely watched by the BoE - slowed to 4.7% from 5.0% in July.
Many firms have said they would raise prices after an increase in their social security contributions in Reeves' first budget last October. She is expected to raise taxes again when she delivers her next budget on November 26.
Core inflation, which excludes energy, food and tobacco prices, fell to 3.6% from 3.8%.
Most economists polled by Reuters and the BoE had forecast that the headline measure of inflation would hold at 3.8%.
British inflation is higher than in the United States, where it increased to 2.9% in August and in the euro zone, where it rose to 2.1%, just above the European Central Bank's 2% target.
The BoE has forecast that British inflation will reach 4% in September and stay above its 2% target until the spring of 2027.
The central bank is expected to hold its benchmark interest rate steady at 4% on Thursday. The Monetary Policy Committee's 5-4 split vote for a quarter-point cut last month suggested it might slow an already gradual pace of rate cuts.
While Britain's labour market has loosened, basic wage growth of 4.8% remains too high for the BoE.
However, official data last week showed Britain's economy grew just 0.2% in the three months to July.
"We still expect the looser labour market to weaken wage growth and eventually bring down UK inflation to similar rates as in the U.S. and the euro zone," Paul Dales, chief UK economist at Capital Economics, said.
That would allow the BoE to cut rates from 4.0% now to 3.0% by the end of next year, Dales said.
"But we think the upside inflation risks are just too high for the Bank of England to cut interest rates tomorrow or, more significantly, at the following meeting in November," he added.
(Writing by Suban Abdulla and William Schomberg; editing by Ros Russell and Bernadette Baum)
Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and ensuring financial stability.
Interest rates are the amount charged by lenders to borrowers for the use of money, typically expressed as a percentage of the principal.
Core inflation measures the long-term trend in prices by excluding volatile items such as food and energy, providing a clearer view of inflation trends.
Food prices refer to the cost of purchasing food items, which can significantly impact overall inflation rates and consumer spending.
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