UK Inflation Rises to 3.1% in August as Fuel Costs Surge, Matching Forecasts

UK consumer price inflation accelerated to 3.1% year on year in August, up from 2.9% in July, marking the first reading above 3% since March and hitting the level economists had forecast. On a monthly basis, CPI rose 0.5%, also matching estimates and up from 0.3% the prior month. The move above 3% is significant because it triggers a formal letter from the Bank of England Governor to the Chancellor under the central bank's remit rules.

The main driver was motor fuel, with gasoline and diesel prices climbing 23% year on year as energy costs surged. The broader CPIH measure, which includes owner-occupiers' housing costs, came in at 3.3% against a prior reading of 3.1% and an estimate of 3.2%. The retail price index printed at 421.6, slightly below the 421.9 estimate. PPI output rose 0.7% month on month, well above the 0.2% prior and the 0.5% forecast, pointing to continued pipeline price pressure.

Despite the headline jump, underlying price growth was described as stable, offering some relief to Bank of England policymakers who are weighing whether to hold or cut rates. Sterling had been languishing near a five-week low against the dollar ahead of the release after weak jobs data earlier in the week, and currency markets were also watching for the Federal Reserve's next policy decision, with a potentially hawkish Fed stance seen as a headwind for the pound.