UK inflation remained unchanged last month at 3.8 per cent, official figures show, but consumers are still facing rising food and drink costs on some of the most popular everyday items like coffee and chocolate.
Food and drink price rises have accelerated for the fifth month in a row, in another hit to the poorest households, with the chancellor admitting that many people are “finding it tough”.
The Office for National Statistics (ONS) announced on Wednesday the rate of Consumer Prices Index (CPI) was 3.8 per cent in August, the same as July. This was the level that most economists had been expecting.
However, the rate of food and drink inflation rose to 5.1 per cent in August, from 4.9 per cent in July, as shoppers continued to face higher prices for items at the till.
Among food items, beef and veal has had the biggest annual rise in price, up by a quarter (24.9 per cent) over the past 12 months. Butter is next in line, up 18.9 per cent, while both chocolate and coffee have risen 15.4 per cent in the space of a year.
ONS chief economist Grant Fitzner said: “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 price 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.”
The Food and Drink Federation recently said current prices were “steeper than anything in recent decades” and has projected that costs could continue to rise, with food inflation estimated to hit 5.7 per cent before the end of this year.
The ONS also releases inflation data for CPI including owner occupiers’ housing costs (CPIH) – that measure of inflation sits at 4.1 per cent for the 12 months to August, down from 4.2 per cent a month earlier. CPIH is a more comprehensive measure of inflation, which allows international comparisons to be drawn, though the UK tends to use CPI more frequently.
Scott Gardner, investment strategist at Nutmeg, pointed out the signs within the data which suggested some positives for the future – but noted households would still be footing the bill for now.
“With forecasts suggesting inflation could rise even further in the short term and hit 4 per cent going into the autumn, the cost of living strain on household finances will persist in the months ahead. In short, already sticky inflation is likely to get stickier,” he said.
“While the headline rate remains elevated, there are some positives from this latest inflation reading. Closely watched core inflation fell during the 12-month period to August. Services inflation also showed good progress but there are signs that businesses continue to pass on their own cost increases. At the same time, for consumers, the energy price fall was offset by an increase in food prices, which continue to accelerate and punish many at the checkout.”
Meanwhile, the British Chambers of Commerce (BCC) has underlined that businesses are also still in the firing line and reiterated their call for the government not to add further tax burdens on firms in the Budget.
“Businesses will be worried by inflation holding at 3.8 per cent at a time when cost pressures continue to bite, especially on wages. The BCC’s latest economic forecast expects inflation to remain at around this level until the end of the year,” said Stuart Morrison, BCC research manager.
“Firms are clear that April’s rise in national insurance, continued strong wage growth and higher tariffs are all eroding their operating margins. There is also growing concern that sticky inflation will limit the scope for further interest rate cuts.
“Ahead of the Autumn Budget, our message to the chancellor is clear – there must be no new tax rises on business. Firms cannot provide the economic growth we all need if they continue to be hampered by rising costs.”
One finance expert urged savers to protect their money by ensuring their bank’s interest rate was higher than the rate of inflation.
“While the inflation rate holding at 3.8 per cent may appear stable, it still poses a challenge for savers. At this level, the real value of their money continues to be chipped away,” explained Derek Sprawling, head of money at Spring Savings.
“Now is not the time for complacency and savers should be proactive in reviewing their accounts. With many still earning minimal interest, switching to a savings product that offers a return above inflation is key to preserving financial wellbeing.”
With inflation remaining high and jobs data from this week also still uncertain, there is expected to be no chance the Bank of England will cut interest rates further when the Monetary Policy Committee meets on Thursday. Many analysts are now expecting no further cuts across the remainder of 2025, leaving the Bank Rate at 4 per cent.
