Inflation rises to 3.1% with fears of worse to come from Middle East energy meltdown – as Brits face threat of interest rate hikes and more tax at Budget

Brits are bracing for a fresh wave of inflation today after official figures showed prices already accelerating.

The headline CPI rate was 3.1 per cent in the year to August, up from 2.9 per cent the previous month.

The bump was in line with expectations, but economists have been warning that could be only the start, as the Middle East crisis looks to be deepening. 

Oil costs have been running at eye-watering levels, with Brent Crude at $108 a barrel this morning. Drivers are already feeling the pinch at the pumps, where diesel is at a four-year high.

There are estimates that energy bills could be set to rise by a quarter in January, while the Government is struggling to find ways of balancing the books at the Budget next month. 

Some analysts believe CPI will now hit 4 per cent next year, with markets pricing in multiple interest rate increases as the Bank of England fights to prevent a spiral.

The Monetary Policy Committee – which targets 2 per cent inflation – will make its latest decision on rates tomorrow, although it is widely predicted to hold fire this time.  

Andy Burnham and John Healey (left) are struggling to find ways of balancing the books at the Budget next month

ONS Chief Economist Grant Fitzner said: ‘Sharp price rises for petrol and diesel pushed inflation up again in August. Higher airfares, particularly for long-haul journeys, also contributed to the increase.

‘Rising crude oil and petrol prices increased both the annual cost of raw materials and the price of goods leaving factories respectively.’

Gas prices have also been ticking higher since the US-Iran ceasefire deal collapsed on July 8. 

In a small bright spot, so-called core CPI – excluding energy, food, alcohol, and tobacco – held steady at 2.6 per cent in the year to August. 

Mr Healey said: ‘The war in the Middle East is impacting on inflation worldwide, not just here at home. In our bills, our weekly shop and at the petrol pumps.

‘We have taken early action to help families and businesses breathing space, by cutting tax on electricity bills, capping bus fares at £2 and lowering rates for pubs, social clubs and live music venues.

‘Despite this serious global uncertainty, our UK economy is proving resilient, and our determination to deliver and growth in every postcode continues.’ 

There was a bleak readout for Britain’s jobs market yesterday.

Official figures showed numbers on company payrolls fell by 26,000 last month, and are now down 145,000 over the past year. 

Job vacancies tumbled to a fresh five-year low in the three months to August, with around 8,000 fewer advertised compared to the same period in 2025. 

Meanwhile, private sector regular wage growth was 2.9 per cent – barely keeping ahead of inflation. 

Shadow chancellor Andrew Griffith said: ‘Inflation is now at 3.1 per cent meaning that every family is paying the price for Labour’s choices.

‘Labour’s jobs tax and employment red tape are being passed on to consumers in the weekly shop and their mad energy policies are pushing up costs and leaving Brits exposed.

‘In difficult times, we need a serious government with a plan, not amateurs with a bunch of pet projects.’

Harvir Dhillon, lead economist at the British Retail Consortium, said: ‘Today’s figures highlight the challenging environment retailers face. 

‘Headline inflation has increased, with goods such as clothing and accessories seeing marked increases on the month. 

‘One bright spot for households was that food inflation remained unchanged, with deals to be had on staple items like olive oil and coffee… 

‘Tackling the cost of living is a top priority and retailers continue to do all they can to hold prices down. 

‘But until fiscal conditions improve, they will be fighting with one hand tied behind their back. The Autumn Budget is a chance to reset and reduce the cost pressures building up across the industry.’