UK inflation remained unchanged at 3.8% in August, according to data from the Office for National Statistics (ONS).
The figures, released on Wednesday, highlight how higher food, restaurant, and hotel prices kept pressure on household budgets.
The development strengthens expectations that the Bank of England will keep its interest rate steady at 4% during its upcoming policy meeting.
With borrowing costs already reduced five times since last summer, analysts suggest the pace of cuts could slow, reflecting stubborn price growth despite a weakening economy.
Inflation drivers: food, restaurants, and hotels
Food and drink once again proved the main contributor, with inflation climbing to 5.1% in August, compared with 4.9% in July.
Restaurants and hotels also saw stronger price growth, alongside increases in petrol costs.
Services inflation, a measure closely monitored by policymakers as a gauge of domestic price pressures, eased slightly from 5.0% to 4.7%.
The drop was supported by lower airfares, though the wider picture still points to sticky price growth.
The ONS data suggests that despite some easing in services, core drivers such as food remain elevated.
Economic growth slows as trade pressures mount
The Bank of England faces its decision against the backdrop of slowing growth. After posting a 0.7% expansion in the first quarter, the economy cooled to just 0.2% in the three months to July.
Businesses have been squeezed by higher taxes and ongoing strains linked to the US trade war.
Traders have already scaled back expectations of multiple rate cuts in the near term. Market pricing, based on swaps data, now points to only one or two quarter-point reductions by the end of 2025.
This shift reflects concern that inflation will remain close to, or above, 4% in the short term, double the BoE’s 2% target.
UK inflation compared with Europe
The UK’s 3.8% inflation rate continues to stand above that of major European peers.
Germany recorded price growth of 2.1% in August, while France saw inflation slow sharply to just 0.8%. Across the Eurozone, inflation is estimated at 2.1%, nearly half the UK level.
The Bank of England forecasts that UK inflation will peak at 4% in September. That prediction rests heavily on the persistence of higher food costs.
At the same time, services inflation will remain a key focus for policymakers, as it directly reflects domestic demand conditions.
Budget challenge for Chancellor Rachel Reeves
The inflation data lands ahead of Chancellor Rachel Reeves’ November Budget.
The challenge for the Treasury is to stimulate growth while addressing public finances. The figures underline how higher household costs continue to complicate that task.
While the Bank of England is expected to keep its rate steady this week, the pace of further cuts remains uncertain.
Analysts caution that inflation’s persistence could slow monetary easing, even as the broader economy shows signs of weakness.
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