^{Photo: BBC}

Inflation Stalls But Stays Elevated

The UK’s annual inflation rate remained unchanged at 3.8% in August, according to the Office for National Statistics (ONS). This matched economists’ forecasts from a Reuters poll and came after a hotter-than-expected reading in July.

Core inflation — which strips out volatile items like energy, food, alcohol, and tobacco — slowed slightly to 3.6% from 3.8% in July, but still sits well above the Bank of England’s 2% target. The Bank has projected that headline inflation could peak at around 4% in September before easing gradually into 2026.

ONS Chief Economist Grant Fitzner noted that a slower rise in airfares helped keep price growth contained in August, offsetting higher petrol prices and a milder drop in hotel accommodation costs compared to last year.

Price Pressures Continue in Food and Fuel

Despite the plateau in headline inflation, food prices rose for the fifth straight month, with notable upticks in vegetables, cheese, and fish. Meanwhile, fuel prices at the pump climbed, contributing to household cost pressures just as colder months approach.

This sticky trend comes amid slowing wage growth. While pay rises have cooled from their earlier highs, they have not fallen enough to reassure policymakers that inflation is firmly on a downward path.

Market Reaction and Political Response

The British pound slipped slightly against the U.S. dollar, trading around $1.36, after the data release. Market participants largely expect the Bank of England to keep its base interest rate at 4% in its upcoming meeting on Thursday, following its quarter-point rate cut in August from 4.25%.

UK Finance Minister Rachel Reeves acknowledged the strain on households, saying she understands that “families are finding it tough and for many the economy feels stuck,” while pledging to bring down costs and support those facing rising bills.

Bank of England Weighs Its Next Move

The Bank has signaled a “gradual and careful” approach to monetary easing, balancing inflation risks against the need to stimulate growth and investment. However, analysts see little chance of another rate cut this month and are split on whether November could bring any policy change.

Scott Gardner, investment strategist at Nutmeg (part of J.P. Morgan), said sticky inflation is narrowing the window for further rate cuts this year. “While wage growth has fallen, more progress is needed on the inflation front to convince policymakers that another cut is safe. A fourth rate cut this year would likely require further weakness in the labour market — a pyrrhic victory at best,” he noted.

Gardner added that if inflation does rise toward 4% this autumn, as many forecasts suggest, the cost-of-living squeeze will continue to weigh heavily on households. In his words, “Already sticky inflation is likely to get stickier.”

The Bottom Line

While the UK’s inflation rate has stopped climbing for now, it remains far above the Bank of England’s target. High food and fuel costs, slow wage adjustments, and fragile consumer confidence are making it harder for the central bank to deliver more rate cuts without risking a rebound in prices.

With inflation expected to brush 4% before cooling, the Bank of England is likely to stay on hold for now—watching carefully, but unwilling to move the needle until clearer progress emerges on taming price pressures.