UK inflation hit its highest level in five months in August, driven by soaring petrol and diesel prices alongside a jump in airfares. The Consumer Prices Index (CPI) rose to 3.1% from 2.9%, according to the Office for National Statistics (ONS).
In August, the price of filling up a car rose sharply as the fighting in the Middle East kept disturbing supplies of oil worldwide. The ONS reported that petrol prices reached their highest point in nearly four years, and diesel costs also rose sharply. Motor fuel prices climbed by 23% compared with August the year before.
The Cost of Filling Up
After the US-Israel war with Iran saw oil rise above $91 a barrel, pump prices surged. The figure was more than $73 a barrel before the conflict began earlier this year. Prices at the pump have kept climbing since then, with average petrol costs rising by 9.1p to reach 161.3p per litre between July and August.
According to “This is the highest price recorded since November 2022,” at the time Russia’s full-scale invasion of Ukraine had driven up global energy costs, which pushed the figure up.
The increase in fuel costs matters because it lands directly on people’s daily lives. A family driving to work and school sees the bill grow with each fill-up. The ONS data shows the pressure is not temporary — the 23% rise in motor fuel prices is a sustained increase across the board.
Airfare Pressure
The cost of air travel climbed during the key month for summer getaways, adding to the strain on households that were already paying more at the pump.
The combined effect pushed inflation up to its highest level in five months. The 3.1% reading is notable because it moves further away from the Bank of England’s 2% target.
What the Experts Say
The chief UK economist at Capital Economics, Paul Dales, explained that the impact of rising oil prices has not yet spread to other items. Food and drink inflation stayed at 1.3% in the year to August.
But he warned that bigger rises are coming. “Everyone knows that bigger rises in inflation are on their way,” he said.
Dales estimates inflation will peak at 4.2% in January, driven by a combination of higher oil and gas prices and “the eventual ‘first-round’ effect of businesses passing on some of their higher energy costs”.
Forecourt Pressure
Higher oil prices also hurt the people who run the stations. Goran Raven, owner of Essex petrol station RJ Raven, told the BBC: “Things are down. We’ve got lots of pressure on us at the moment. I’d say we’re about 20% down on this time last year.”
According to Raven, the oil price has a “real-time impact on us”. And not long ago, the price of Brent crude — which serves as the benchmark for the global oil market — topped $100 a barrel.
“We only have small tanks here, so we need a tanker almost every day at the moment and we have to pay a daily spot price,” he said. “When the price goes up, we have to go up with it. There’s no way around it.”
The assessment is that “The margins here are wafer-thin on fuel. People like to think we’re earning a lot on it. Unfortunately, we really aren’t. It’s single digits of pence we earn per litre.” is the clearest example of the issue.
What makes his account worth reading is its demonstration of how the price spike actually happens. It is not a small retailer who sets the price — they are responding to it, and the profit they take on each sale is small. The moment the price paid by wholesalers goes up, the price at the pump follows within hours.
The Bank’s Response
The Bank of England employs interest rates as a tool for managing inflation. That rate presently sits at 3.75%, and the bank’s governing body convenes on Thursday to determine whether to alter it.
Chancellor John Healey, who is preparing to announce his first Budget next month, acknowledged the global pressure. “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,” he said.
He added: “Despite this serious global uncertainty, our UK economy is proving resilient.”
New data indicates that the UK economy grew by 0.4% in July, driven by spending on artificial intelligence. However, the pace of expansion slowed to 0.4% during the second quarter, down from the 0.6% recorded in the first three months of the year.
Shadow Criticism
Andrew Griffith, shadow chancellor, argued that the government’s policies are making things worse. “The government’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,” he said.
Starting on 1 October, the government is reducing VAT on household electricity bills to zero, down from 5%, which should save a typical family around £45 annually. The price cap for both electricity and gas bills is also going up by 4%.
It means a home using a typical amount of gas and electricity will pay £60 a year more.
“If gas prices remain around current levels, household energy bills could rise by a further double-digit amount from January, with an even larger increase possible if wholesale prices climb further.”
The VAT reduction will only partly counteract the rise in fuel costs, according to Yael Selfin, chief economist at KPMG. She noted that gas prices have climbed due to the conflict with Iran and disruptions to worldwide supplies, including liquefied natural gas.
Winter Worries
Emma Ashfield, a nursery worker from Northern Ireland raising her eight-year-old daughter, said everything is already “extremely expensive”.
“You are trying to keep food on the table, [buy] clothes, trying to provide for them,” she said. “You would basically need a second job.”
With winter approaching, energy costs are another worry. “I find electric very pricey⦠and it is costly trying to heat my apartment too,” she said. “My wee girl is always wanting the heating on, so that’s another thing.”
Political Reaction
Daisy Cooper, the Liberal Democrat Treasury spokesperson, has condemned the war’s role in driving prices. “Trump’ as illegal, arguing that it is once again hitting British families hard, with the Conservatives and Reform UK having encouraged it. She described it as a wake-up call for the government.
This criticism is rooted in Daisy Cooper’s take on what caused the jump in prices.
What Comes Next
On Thursday, the Bank of England meets to decide on interest rates, and its choice will be closely watched. Changes in borrowing costs, mortgages and consumer spending all depend on the outcome.
A 4.2% peak in January is what Dales predicts, which points to inflation possibly climbing still higher. The reason rests with oil and gas prices moving up alongside companies passing along their own rising costs, both working together to send prices past the present target.
The government’s response so far includes the VAT cut on electricity and the price cap increase. Whether those measures fully offset the higher gas costs remains unclear, given Selfin’s warning about potential double-digit rises from January.
Goran Raven’s business is not expected to get easier any time soon. With Brent crude hovering near $100 a barrel, the spot costs for his small tanks stay high, leaving his already thin profit margins exposed.
The war in the Middle East shows no sign of ending, and neither do the costs it brings to drivers and households. The result is a clear warning: more pressure at the pump and on the bill.
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