UK Inflation Climbs to Five-Month High as Fuel Prices Bite

Inflation in the United Kingdom accelerated to a five-month high in August, official data showed Wednesday, as the economic aftershocks of the Iran war continued to push fuel prices higher.

The Office for National Statistics said the consumer prices index rose to 3.1% in August from 2.9% the previous month. The increase was driven largely by higher prices at the pump and costlier airfares, and it moved inflation further away from the Bank of England's 2% target.

The reading will add to pressure on the central bank to raise interest rates again in the coming months. Rate-setters are nonetheless widely expected to hold the main interest rate at 3.75% when their meeting concludes on Thursday, with a majority of the nine-member Monetary Policy Committee appearing to want more time to assess whether higher prices are feeding into wage demands.

A soft labour market is currently keeping wage pressures in check, a factor that may give policymakers room to wait.

"August's inflation increase is unlikely to trigger a rate hike tomorrow, as policymakers will take some comfort from a cooling jobs market," said Suren Thiru, chief economist at ICAEW. "However, it will probably harden the Bank's hawkish tone and leave the door open to higher rates later this year."

UK interest rates had been trending downward from a 15-year high of 5.25% until the United States and Israel attacked Iran in late February. The conflict sent oil and gas prices sharply higher, partly because the Strait of Hormuz has remained largely closed to traffic since.