Inflation shows how the price of goods and services have changed over time, with the Consumer Price Index (CPI) being the main measure
UK inflation remained at 3.8% the 12 months to August, according to the latest figures.
This is the same figure that was recorded in July. It means the prices rose at the same rate in August as they did in July.
The Office for National Statistics (ONS) releases inflation data every month. Air fares rose by 2.1% between July and August, compared with the rise of 22.2% that was recorded this time last year.
But the ONS said this was offset by rising food prices, with cheese, fish and vegetables all becoming more expensive. Fuel prices have also gone up, while the cost of hotels fell by less than this time last year.
The latest inflation update comes just one day before the Bank of England is due to announce its latest interest rates decision. The majority of economists widely expect the base rate will remain at 4% due to stubborn inflation, a weakened labour market and the upcoming Autumn Budget.
The Bank of England started raising interest rates in late 2021 to try and bring inflation down to its 2% target. At its peak, interest rates hit 5.25% – but the central bank has cut its base rate five times now to bring it down to its current level of 4%.
Grant Fitzner, chief economist at the ONS, said: “After last month’s increase, annual inflation was unchanged in August as various price movements offset each other.
“The cost of airfares was the main downward driver this month with prices rising less than a year ago following the large increase in July linked to the timing of the summer holidays.
“This was offset by a rise in prices at the pump and the cost of hotel accommodation falling less than this time last year. Food inflation climbed for the fifth consecutive month, with small increases seen across a range of vegetables, cheese and fish items.”
Chancellor Rachel Reeves said: “I know families are finding it tough and that for many the economy feels stuck. That’s why I’m determined to bring costs down and support people who are facing higher bills.
“Through our Plan for Change we are taking action — raising the National Living Wage, extending the £3 bus fare cap, and expanding free school meals, to put more money in people’s pockets while we work to build a stronger, more stable economy that rewards hard work.”
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What is inflation?
Inflation shows how the price of goods and services have changed over time. The Consumer Price Index (CPI) is the main measure of inflation.
The ONS calculates inflation based on a regularly updated “basket of goods” and services that represents what households are buying. However, the main CPI figure you see in headlines is used to represent an average.
This means the individual prices of some goods may be higher or lower than this main figure. When inflation is lower, it does not mean prices have stopped rising – it just means they’re going up at a slightly slower rate than before.
For example, if the rate of inflation is 3% then it means an item that cost £1 last year would now cost £1.03.
How is inflation linked to interest rates?
The Bank of England increased interest rates over the course of almost two years to try and lower inflation to its 2% target. The base rate influences the interest rate you’re offered by banks and lenders.
When it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere. When people spend less money, this brings down demand and lower prices, which should then lower inflation.
But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched. The base rate stood at just 0.1% in December 2021.
It reached a peak of 5.25% in August 2023 but has since been cut five times to its current level of 4%.
When did inflation reach a peak?
Inflation began to rise in 2021 and peaked at 11.1% in October 2022. The steady increase was largely due to higher costs of energy and food.
Demand for energy increased after Covid and then this was exasperated by the Russian invasion of Ukraine. The war also pushed up food prices, due to rising costs for fertilisers and animal feed.
Inflation fell to its lowest level in three years in September 2024 when it dropped to 1.7% but it started to creep up again the following month in October.
