UK inflation accelerated in August, adding to pressure on the Bank of England as the central bank weighs its next interest-rate move. Consumer Price Index (CPI) inflation rose to 3.1% year-on-year from 2.9% in July, matching market expectations and reaching its highest level in five months.

On a monthly basis, consumer prices increased 0.5% in August, compared with a 0.3% rise in July. The increase was largely linked to higher transport costs, particularly motor fuel prices. However, underlying price pressures were more stable, with core CPI remaining at 2.6%, unchanged from July.

Services inflation, which is closely watched by the Bank of England because of its connection with domestic price pressures, also remained unchanged at 3.4%. This suggests that the August rise in headline inflation was driven more by specific components rather than a broad acceleration across the economy.

The data came ahead of the Bank of England’s September policy decision. The central bank was widely expected to keep its benchmark interest rate at 3.75%, although the latest inflation figures keep the possibility of further tightening in focus. The Bank had previously indicated that higher energy prices could push inflation higher later in the year.

Producer-price data also pointed to continued cost pressures. Raw material prices rose 6.1% annually in August, while factory-gate prices increased 3.7%. These higher input costs could eventually feed into consumer prices if businesses pass them on to customers.

The outlook could become more challenging if energy prices remain elevated. Analysts have pointed to higher oil, petrol and gas prices as a potential source of additional inflationary pressure in the coming months.

For financial markets, the inflation data remains important for the outlook for UK interest rates and the pound. The immediate reaction was relatively limited because the headline and core readings matched expectations, while investors continued to assess how persistent energy-related price pressures could become.

Ready to invest like a pro? Tradz by EquityPandit app equips you with 100+ Free tools and knowledge you need to succeed. Download the Tradz by EquityPandit app and gain access to daily stock lists and insightful market analysis and much more!