Key occasions
The pound is little modified versus the greenback following the inflation knowledge, at $1.3636, however hovering at a two-month excessive.
Victoria Scholar, head of funding on the investing platform interactive investor, mentioned:
In gentle of at this time’s knowledge, it nonetheless appears to be like just like the Financial institution of England is on observe to maintain rates of interest unchanged at tomorrow’s choice assembly. Whereas inflation is clearly caught considerably larger than goal, there was nothing too stunning on this inflation report – CPI got here in step with forecasts, and consequently there wasn’t a lot of a response from sterling.
Elevated inflation, notably larger than the two% goal makes it more durable for the central financial institution to proceed on its financial loosening path, elevating the chance of a higher-for-longer rate of interest setting which may have destructive results on borrowing and the housing market.
The Workplace for Nationwide Statistics famous that UK inflation has been above that of France and Germany each month thus far this yr.
The UK’s CPI inflation fee of three.8% was considerably larger than the primary, or “flash” estimate of inflation for France (0.8%) and Germany (2.1%) in August. The UK fee has been above that of the opposite two international locations in every month of 2025 to this point.
The Meals and Drink Federation is predicting that meals and non-alcoholic drink inflation may attain 5.7% by December, from 5.1% in August.
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5 classes noticed inflation in double digits final month: beef and veal (24.9%), butter (18.9%), chocolate (15.4%), espresso (15.4%), and entire milk (12.6%).
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Costs fell the quickest for: olive oil (-12.5%), flours (-5.9%), sugar (-3.8%), and pasta (-2.8%).
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Whereas the value of olive oil is falling year-on-year, it’s nonetheless over 120% larger than it was in the beginning of 2020.
Karen Betts, the chief govt, mentioned:
It’s regarding seeing foods and drinks inflation rise additional, to five.1% in August, when commodity and power costs are pretty secure. There are nonetheless notable pressures on espresso, cocoa, olive oil and dairy costs, however in any other case the continued rise is defined by regulatory and tax prices. This yr’s will increase to employer nationwide insurance coverage Contributions, the brand new packaging tax, enterprise charges rises and the price of border checks together with to Northern Eire are heaping prices on our sector.
We’d like authorities to convey down the price of regulation – so it’s higher designed, simpler to implement, and higher sequenced so it doesn’t all land without delay on corporations struggling to manage. Producers want to the chancellor within the funds to make sure now we have correct insurance policies and incentives in place to drive productiveness progress throughout foods and drinks, to offset regulatory and tax prices, and to spice up the employment and prosperity that foods and drinks manufacturing supplies in communities up and down the nation. She should resist bringing in new prices to make sure the UK is a lovely place to take a position.
‘Sticky UK inflation leaves November fee minimize hanging within the stability’ – ING
At 3.8%, the newest UK inflation knowledge definitely isn’t welcome information for the Financial institution of England forward of its choice on Thursday, the place it’s broadly anticipated to depart charges on maintain, mentioned James Smith, developed markets UK economist at ING.
But the newest knowledge doesn’t dramatically transfer the needle a method or one other on the prospect of an additional fee minimize later this yr.
Inflation is kind of at a peak, although it’s prone to keep within the 3.5-4% space for the remainder of this yr.
Rising meals inflation is a specific bugbear of the Financial institution of England. But we aren’t within the camp that thinks fee cuts are over, given the prospect of additional progress in providers inflation and wage progress.
Meals inflation nudged above 5%, as each we and the BoE had anticipated. That’s a specific bugbear of officers proper now, given the formative function meals costs play in inflation expectations, but additionally due to the correlation with restaurant/café costs.
Catering makes up 40% of the Financial institution’s most well-liked measure of “core providers” inflation, which gauges the phase of the inflation basket most intrinsically linked to the underlying efficiency of the UK financial system. Inflation within the hospitality sector has been caught round 4% this yr, which we predict is linked to strain from April’s payroll tax and Nationwide Residing Wage hikes.
Whereas providers inflation slowed to 4.7% from 5%, this was primarily due to unstable air fares. The core providers basket stayed at 4.2%, Smith calculated.
Nonetheless, we predict there may be nonetheless scope for providers inflation to undershoot the Financial institution’s forecasts additional within the subsequent launch for September. And extra broadly, we’re seeing a big easing in rental progress, which is ready to be a big supply of service sector disinflation over the approaching months.
If we’re proper about that, it will tip the stability barely extra in favour of a November fee minimize, which we nonetheless narrowly anticipate. Actually, we aren’t within the camp that thinks fee cuts are over. Providers inflation ought to present extra seen progress subsequent spring, whereas wage progress ought to ease beneath 4% by year-end. Add in the truth that the late-November autumn Funds is prone to be dominated by tax rises, and we predict there’s nonetheless an honest case for UK rates of interest to fall two or three extra occasions by subsequent summer season.
Value progress for providers, which is carefully watched by the Financial institution of England, has slowed to 4.7% from 5% in July, whereas items inflation ticked as much as 2.8% from 2.7%.
Sanjay Raja, chief UK economist at Deutsche Financial institution, mentioned:
The excellent news is that August inflation knowledge has corrected a few of the upside shock we noticed final month. The unhealthy information is that CPI has possibly a bit of additional to go earlier than hitting its peak. Certainly, meals inflation continues to push larger – although survey knowledge counsel that we could also be nearing the height on this entrance too. And regardless of higher providers knowledge this morning, inflation within the largest basket stays sticky. To make sure, there are some encouraging bits of knowledge in at this time’s report – and we might want to see extra of this for the Financial institution of England to chop Financial institution Charge once more.
Because of this we proceed to see a barely longer pause in terms of the Financial institution’s subsequent fee transfer. For us, the MPC [monetary policy committee] might need to wait for a bigger accumulation of proof earlier than dialling down restrictive coverage once more. Seeing the downtrend in CPI start may assuage fears on the committee that the hump in inflation shouldn’t be turning right into a plateau.
Analysts say that local weather change is clearly affecting meals costs and making them more durable to manage.
Tom Lancaster, land, meals and farming analyst on the Power and Local weather Intelligence Unit, mentioned:
Meals value inflation is as soon as once more up, after the most well liked spring and summer season on file has hit UK farmers potential to develop crops and feed their animals, with the UK once more going through considered one of its worst harvests in a long time.
Though this excessive climate will solely be a part of the story in these value rises, the signature of local weather change is obvious. And it’s not simply British grown meals similar to beef, milk and greens which can be rising, but additionally costs for foods and drinks like chocolate and occasional too, each pushed up by excessive climate linked to local weather change.
Central banks are clear that local weather change will increase meals costs in methods they can not management or predict, creating systemic threat to our meals system. There isn’t a financial coverage lever they will pull to handle this. Solely by lowering our emissions to internet zero and bringing stability again to our local weather will we restrict the impression of local weather change on meals costs sooner or later.
Meals costs rise at quickest fee since January 2024
Meals costs rose for the fifth month in a row – after the most well liked spring and summer season on file which broken harvests – to an annual fee of 5.1%, up from 4.9% in July and the best since January.
Greens, milk, cheese and fish turned costlier, whereas bread and cereals and oil and fat turned cheaper.
Air fares rose by lower than final yr.
Ticket costs have been up by 2.1% between July and August, in contrast with an increase of twenty-two.2% right now final yr. This was because of the totally different timing of flights in relation to highschool summer season holidays, notably return flights from Europe. Final yr, these return flights from Europe fell throughout the college time period in July, however this yr they have been throughout the college holidays in July, making them costlier this yr.
This was offset by larger costs at eating places and inns, and gas prices. Costs at eating places and inns rose by 3.8% yr on yr in August, up from 3.4% in July.
The most important upward impact got here from lodging suppliers, particularly from in a single day lodge stays priced the day gone by, the place costs fell this yr by lower than an ear in the past. There was additionally a smaller upward impact from canteens.
The common petrol value rose by 0.3p a litre between July and August to 134.2p, in contrast with a fall of two.1p a litre final yr. Equally, diesel costs rose by 0.8p per litre to a mean of 142.p, towards a 2.6p per litre drop final yr.
Rachel Reeves, the chancellor, mentioned:
I do know households are discovering it robust and that for a lot of the financial system feels caught. That’s why I’m decided to convey prices down and help people who find themselves going through larger payments.
By our Plan for Change we’re taking motion — elevating the Nationwide Residing Wage, extending the £3 bus fare cap, and increasing free college meals, to place more cash in individuals’s pockets whereas we work to construct a stronger, extra secure financial system that rewards onerous work.
Introduction: UK inflation stayed at 3.8% in July
Good morning, and welcome to our rolling protection of enterprise, the monetary markets and the world financial system.
UK inflation stayed regular final month, protecting households below strain with petrol costs rising.
The annual fee of inflation, as measured by the patron costs index, remained at 3.8% final month, the same as in July, in accordance with the Workplace for Nationwide Statistics. This was in step with what economists had predicted.
Air fares rose by lower than yr whereas costs at eating places and inns, and for petrol and diesel, have been larger.
The core fee of inflation, which strips out unstable power and meals prices, fell to three.6% in July, additionally as forecast by economists.
With rising inflationary pressures, monetary markets are broadly predicting the Financial institution of England will preserve rates of interest unchanged at 4% on Thursday. Inflation is sort of double the central financial institution’s goal of two%.
Donald Trump landed at London Stansted final night time for an unprecedented second state go to to the UK.
The US president and the primary woman, Melania Trump, touched down onboard Air Pressure One forward of a collection of occasions over the following two days, together with being hosted by King Charles, army parades and a attainable flypast by the Purple Arrows alongside British and American F-35 jets.
It comes amid criticism within the UK of Trump’s insurance policies and rhetoric, with the Cease Trump Coalition gathering for a protest in Windsor on Tuesday and the group planning one other demonstration in central London on Wednesday.
Writing in the Guardian, the London mayor Sadiq Khan accused the US president of doing greater than anybody else to “fan the flames of divisive, far-right politics around the globe in recent times”.
Later at this time, the US Federal Reserve publicizes its newest rate of interest choice. It’s broadly anticipated to chop charges by 1 / 4 level to 4.25%.
The Agenda
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8.30am BST: ECB president Christine Lagarde speech
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10am BST: Eurozone inflation for August (last)
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1.30pm BST: US Housing begins for August
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2.45pm BST: Financial institution of Canada rate of interest choice
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7pm BST: US Federal Reserve rate of interest choice (forecast: quarter-point minimize to 4.25%)
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7.30pm BST: Fed press convention
