Inflation in the U.K. held steady at 3.8% in the year to August, official figures showed Wednesday, a day before the Bank of England is widely expected to keep interest rates on hold.
The Office for National Statistics said food and drink prices rose for the fifth month in a row, but airfares fell sharply after a big spike in July.
Though inflation remains nearly double the Bank of England’s 2% target rate, most economists had anticipated a modest increase in August.
Stubbornly high inflation has been one of the reasons the Labour government’s poll ratings have fallen sharply since it came to power in July 2024.
Treasury chief Rachel Reeves will be hoping inflation starts to fall toward target, as many forecasters predict, over the coming year. A decline would ease some of the cost-of-living pressures hurting households and undermining government support.
“I know families are finding it tough and that for many the economy feels stuck,” she said after the figures were released. “That’s why I’m determined to bring costs down and support people who are facing higher bills.”
Reeves’ economic plans will be in the spotlight over the coming weeks ahead of her annual budget on Nov. 26, when she is widely expected to increase taxes again to bolster revenues and introduce policies to ease cost-of-living pressures.
Many critics blame Reeves personally for the rise in inflation this year, saying her decision to increase taxes on businesses to plug a budget hole prompted firms to raise prices.
The inflation figures have cemented market expectations that the Bank of England will keep interest rates unchanged on Thursday.
Since it began cutting borrowing rates in August 2024, following the unwinding of the inflation spike after Russia’s invasion of Ukraine, the bank has reduced rates gradually every three months. When it cut its main rate to 4% in August, it was largely expected there would be no further reduction at the September meeting.
If the bank were to continue cutting interest rates in the same pattern, the next meeting in November would bring another reduction. However, economists remain split on whether another cut is coming, since inflation has proven stickier than anticipated earlier this year, partly because of relatively high wage growth.
“Several months of disappointing data has highlighted the U.K.’s unwanted position as an international outlier for ‘sticky’ inflation, with the highest headline inflation of any G-7 economy,” said James Smith, research director at the Resolution Foundation think tank.