Closing post
Time to recap….
UK inflation has returned above 3% as soaring fuel and transport prices triggered by the Iran war heap renewed pressure on British households.
Figures from the Office for National Statistics show inflation as measured by the consumer prices index rose from 2.9% in July to 3.1% in August. The increase, which matched City forecasts, was driven by motor fuel prices rising by almost a quarter.
In a critical week for the economy, the Bank of England is preparing for a decision on interest rates on Thursday against a backdrop of rising inflationary pressures from soaring oil and gas prices.
With headline inflation drifting further from its 2% target, financial markets predict a one-in-five chance of a quarter-point rise from the current level of 3.75% as Threadneedle Street comes under pressure to take action. The City expects as many as four increases to 4.75% by the end of next year.
Economists were encouraged, though, that UK core inflation remained unchanged in August.
But factories reported a rise in their input costs, which pushed up the cost of their products.
Prime minister Andy Burnham argued that the economy looks resilient, telling broadcasters:
If you look at the the detailed picture underlying today’s inflation figures, it shows resilience across the board, actually, in the British economy.
UK government borrowing costs dropped, with two-year gilt yields on track for their biggest daily decline in seven weeks.
In the property sector, house prices are continuing to drop in London.
The average property price in the capital fell by 3.3% year-on-year in July – the eleventh consecutive drop, and the lowest annual rate since January 2024. This means the average house price in London is now £19,000 below the recent peak in July 2025, at £569,000.
Rents are rising across the country at a faster pace, prompting a call for rent controls from the Green party.
Wall Street has opened higher as New York traders await tonight’s interest rate decision from the US Federal Reserve.
The S&P 500 share index has gained 17 points or 0.23% to 7,603 points.
Technology stocks are leading the risers, recovering from their slump earlier this week. Intel are up 6% and Dell are 4.1% higher.
Spending by US consumers recovered sharply in August, suggesting Americans are not cutting back despite the jump in energy prices caused by the Iran war.
US retail sales rose by 1.2% in August, the most in five months, following a 0.5% drop in July.
The figures are not adjusted for price changes, so this may reflect that people bought more stuff or just that stuff became pricier.
Key event
The Green party are calling for rent controls to protect UK tenants from spiralling cost increases.
Green MP Hannah Spencer has argued that this morning’s data showing rents rising at the fastest rate this year shows that the government must act, saying:
“The latest ONS figures show how completely broken the private rented sector is.
“The Renters’ Rights Act has not done enough for affordability. The temporary accommodation crisis we are seeing across the country is a direct result of a private rented sector spiralling out of control.
“The fastest rent rises in the North West and North East, at 5.8%, mean hundreds of pounds more a year transferred from families and individuals already stretched to breaking point straight into the pockets of private landlords.
“We need rent controls now, and council homes built at scale. Families in my constituency and across the country can’t afford to wait any longer.
“If Andy Burnham is serious about finally tackling the cost of living, he needs to act now.”
Eearlier this week property website Zoopla reported that the number of homes for rent has dropped by 3% compared with a year ago.
UK 2-year gilt yields set for biggest one-day drop in seven weeks
Short-dated British government bond yields are heading for their biggest one-day drop since July 30 today.
The yield on two-year gilts dropped by more than 10 basis points at one stage to 4.792%, Reuters spotted.
Yields fall when bond prices rise, and this highlights that the City expects the Bank of England to leave interest rates on hold today.
Bond traders are also relieved that the oil price has dropped today, by 1.6%.
The US housing market is feeling the strain from higher borrowing costs
US mortgage rates last week climbed to the highest level in more than a year, with a 30-year mortgage rate up 12 basis points to 6.97%. That’s the highest level since May 2025.
Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, says:
“Ongoing market concerns over spiking energy prices, persistently high inflation, and future monetary policy pushed bond yields and mortgage rates higher last week.”
UK supermarket chain Morrisons has reported its strongest sales growth for more than a year, as it pushes through its turnaround plan.
The debt-laden retailer said it was boosted by hot weather and the World Cup over the latest quarter, and had also cut its borrowing levels.
Like-for-like sales rose by 3.2% in the 13 weeks to 26 July, its fifteenth consecutive quarter of LFL growth.
Boss Rami Baitieh said the group’s trading was “robust” and surpassed wider UK grocery market after investment into improving its pricing:
“Our stronger sales momentum reflected a broad-based improvement across the business - with our Supermarkets, Online, Convenience, Pharmacy and Myton manufacturing businesses all reporting good growth, underlining our progress with our plans to renew and modernise Morrisons.
“Key to this performance is our continued commitment to keeping prices low. The recent launch of our Unbeatables price promise, which guarantees customers won’t find better value on hundreds of essential products at named major supermarkets, has already had a positive impact.
Burnham: Rise in inflation is a concern
UK prime minister Andy Burnham has promised to take “difficult decisions” to ensure the economy remains on track, after UK inflation rose to a five-month high this morning.
Burnham told reporters:
“We will take difficult decisions to make sure the economy remains on track.”
The PM also described this morning’s rise in inflation to 3.1% as “a concern”, but insisting there was also “resilience” in the economy.
Full story: UK inflation rises to 3.1% in August
If you’re just tuning in, the big news of the morning is that UK inflation has returned to above 3%.
Soaring fuel and transport prices triggered by the Iran war pushed up the cost of living, heaping renewed pressure on British households.
Figures from the Office for National Statistics show inflation as measured by the consumer prices index rose from 2.9% in July to 3.1% in August. The increase, which matched City forecasts, was driven by motor fuel prices rising by almost a quarter.
In a critical week for the economy, the Bank of England is preparing for a decision on interest rates on Thursday against a backdrop of rising inflationary pressures from soaring oil and gas prices.
With headline inflation drifting further from its 2% target, financial markets predict a one-in-five chance of a quarter-point rise from the current level of 3.75% as Threadneedle Street comes under pressure to take action. The City expects at least four increases to 4.75% next year.
Economists said there were signs that underlying inflation remained in check amid a cooling UK jobs market, although they said the fallout from war in the Middle East could push the headline rate close to 4%.
Here’s the full story:
Mike Ashley's son-in-law become chair of Hugo Boss
After agitating for change at Hugo Boss, retail magnate Mike Ashley appears to have decided that his son-in-law is the best man to take on the job.
Hugo Boss announced this morning that Michael Murray has been elected at its chairman, after the previous incumbent Stephan Sturm resigned under pressure from Fraasers for “an orderly transition” of power.
Sturm stepped down on Monday morning, a month after Hugo Boss’s board rejected a £1.7bn takeover offer from Ashley’s Frasers group.
Frasers owns around 48% of Hugo Boss’s equity, giving it powerful influence over the fashion group.
Murray, the CEO of Frasers, married Ashley’s eldest daughter Anna in 2022.
Sinan Piskin, deputy chairman of the Supervisory Board of Hugo Boss, says Murray is an “excellent successor” to Sturm, adding:
“His election signals clarity in the leadership of the Supervisory Board at an important stage for the Company and ensures continuity in our strategic course moving forward, in the interest of all our stakeholders.
We wish Michael Murray all the best in his new role and look forward to continuing our close and constructive collaboration.”
PwC revenues fall for first time in over a decade
PwC UK‘s revenues have fallen for the first time in over a decade, as the big four accountancy firm struggled with a slump in its Middle East business.
Total revenue for the UK group, which includes its operations in the Middle East and the Channel Islands, slipped by 3% to £6.2bn in the 12 months ended in June. Revenues in the Middle East business fell by 15% to £1.7bn, offsetting a 2% rise in the UK.
Marco Amitrano, who leads PwC UK, admitted there had been a “more difficult trading environment in the Middle East”, but said the firm was seeing “clear evidence that the choices we’ve made are strengthening our business”.
He said:
“There is always more to do... Our focus now is on maintaining that momentum - continuing to transform, helping our clients take the opportunities ahead, and creating sustainable value for our business, our clients, our people and the wider UK economy.”
Indeed despite the overall drop in revenue, PwC partners were paid more this year: profit per partner rose 8% to £935,000, up from £865,000 in the 2024/25 period.
That contrasted with a 12% drop in its total headcount, with 4,000 fewer people working at the business overall compared with last year. PwC, like other big four firms, has been reducing its staff numbers in recent years as the sector has grappled with a prolonged slowdown in demand after a pandemic-era boom, as well as AI disruption.
Yesterday it emerged that rival firm KPMG is cutting about 200 jobs from its UK advisory business, including staff working on AI.
UK five-year fixed mortgage rates hit highest since November 2023
Fixed-rate mortgages in the UK have become even more expensive this morning.
Data provider MoneyFacts reports that the average five-year mortgate rate has risen to its highest since 8 November 2023, at 5.82%, up from 5.78% yesterday.
Shorter-term fixed loans are pricier too. The average two-year fixed residential mortgage rate is now 5.77%, the highest since 11 May.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, explains:
“Mortgage borrowers are facing another unwelcome rate shock as the average five-year fix has hit 5.82% for the first time since November 2023.
Volatile swap rates have been forcing lenders to reprice, with major banks such as NatWest, Santander, HSBC, and Lloyds Bank all boosting rates for the second time since the start of September. For many borrowers, this is deeper than a headline rate, it could be the cost of their next mortgage and with inflation continuing to creep up, households’ budgets will be under pressure.”
Average London house price now £19,000 below its peak
House prices are continuing to drop in London, even as rents in the capital (and beyond) rise again.
The average property price in the capital fell by 3.3% year-on-year in July – the eleventh consecutive drop, and the lowest annual rate since January 2024.
The Office for National Statistics reports that “Inner London particularly affected” and that the average house price in London is now £19,000 below the recent peak in July 2025, at £569,000.
Overall, the average house price for England was £293,000 in July, up by 1.1% (£3,000) from a year earlier, the ONS reports.
Updated
UK rental inflation hits highest rate so far this year
The cost of renting a property in the UK has risen again, and at a faster rate.
The average UK monthly private rent increased by 3.8%, to £1,400, in the 12 months to August, new data from the Office for National Statistics shows,
That’s up from 3.7% in July, and the highest since last December.
Average rents increased to £1,459 (4.0%) in England, £846 (4.3%) in Wales, and £1,013 (1.1%) in Scotland, in the year to August.
Average rent was highest in London , at £2,332 a month, and lowest in the North East at £788 a month, in August.
The ONS says:
The North East and North West had the highest rent annual inflation rate of all English regions, both at 5.8%, in the 12 months to August 2026. The North East’s annual rate was down from 6.3%, while the North West’s annual rate was up from 5.7%, in the 12 months to July 2026.
London’s annual inflation rate rose to 3.5% in the 12 months to August 2026, up from 3.0% in the 12 months to July 2026
Some industry figures have warned that the recently introduced Renters’ Rights Act, which bans no-fault evictions and gives tenants stronger rights, could lead to higher rents and landlords selling up.
Updated
Britian’s largest housebuilder has cut its construction plans for this year, in a blow to the government’s house-building targets.
Barratt Redrow announced this morning that it now plans to complete between 17,500 and 17,900 homes in the current financial year, down from a previous goal of 17,700-18,200.
It blamed “continued planning delays” for holding back its activities.
The company aso beat market expectations by reporting adjusted pre-tax profits of £572.8. for the year to 28 June.
Its shares have jumped over 8% in early trading, making Barratt the top riser on the FTSE 100 this morning.
The Bank of England isn’t only setting interest rates tomorrow.
The UK central bank is also deciding whether to slow – or even pause – its sale of government bonds bought after the financial crisis and during the Covid-19 pandemic.
Those sales, through a process called ‘quantitative tightening’, are controversial as a) they’re pushing up UK borrowing costs, and b) the Bank is making a loss on the process.
The City concensus forecast is that the Bank will slow its bond sales to £50bn a year, down from £70bn. It could even stop selling long-dated bonds altogether.
Professor Costas Milas of the University of Liverpool suggests the Bank could even combine a QT change with a surprise rate hike tomorrow:
Today’s inflation reading raises the issue of whether the BoE’s policymakers need to raise interest rates tomorrow or wait for the next meeting in November.
If the Fed hikes today (a big if) despite Trump’s pressure to cut rates and given that the ECB also hiked, “passiveness” from the BoE would look (at best) strange.
What the BoE’s policymakers could do is raise interest rates tomorrow at the same time while pausing active Quantitative Tightening (the sale of government bonds). Pausing active sales of government bonds has been suggested by my co-author Christopher Mahon, senior fund manager at Columbia Threadneedle Investments, and a visiting fellow at the Open University Business School – see here for the details.
Such a double move (interest rate hike and pausing active sales of government bonds) would mean the front end of the yield curve goes higher but the back end would now be under much less stress... The point is that the BoE has options to pursue tomorrow.
The big danger is that disruption to oil supplies causes an “energy-driven economic shock”, warns George Lagarias, chief economist at Forvis Mazars.
And there’s very little the Bank of England can do to stop that, Lagarias explains:
“Inflation rose above 3%, in line, however with expectations. This is of little consequence. Inflation figures have once again become too backward-looking, even for central bank.
Oil and gasoline supply disruptions are growing by the day, even as global reserves are reaching a critical point. At this juncture, the risk isn’t a linear rise in inflation, but an energy-driven economic shock.
The central bank can do precious little about such supply-side disruptions, especially potential ones. Despite elevated rate expectations (4-5 hikes until mid-2027), the Bank of England should avoid looking at historic inflation data and think twice before taking action altogether. Supply shocks can push inflation up, but they can also meaningfully hurt growth, and that’s a potential decision that should be take later down the line and with more information.”
Updated
UK gilt yields are falling
Rising inflation adds to the challenges facing John Healey as he prepares his first budget.
But the chancellor could be cheered by a peek at the bond markets today, where UK government borrowing costs are falling!
The yield, or interest rate, on short and long-dated UK debt are both dropping today. Ten-year gilt yields, which hit the highest since 2007 this week, are down 5 basis points (0.05 of a percentage point) at 5.35%.
This might indicate that the markets are a little less concerned about the outlook for UK inflation, as core CPI (which strips out food and energy) was unchanged at 2.6% in August.
Rising inflation will make life even tougher for those who are struggling to pay for essentials such as food and energy.
Edward Ware, head of influencing at the Money Advice Trust, the charity that runs National Debtline, says:
“Rising inflation will be yet another unwelcome worry for households already grappling with higher living costs. For people on tight budgets, even small increases in the cost of everyday essentials can make balancing their finances even harder.
“Every day at National Debtline, our advisers see the impact of the squeeze on household budgets, with almost half (46%) of the people we support not having enough money to cover their essential bills each month and two in five behind on their energy bills.
“With the continued squeeze on living costs and with energy bills set to rise in the coming weeks, it’s clear more support for households will be needed. The Government and Ofgem should press ahead with the energy Debt Relief Scheme for customers with unaffordable energy arrears, helping ensure historic debt does not become a permanent barrier to financial recovery.
“Anyone worried about their finances should seek free debt advice as early as possible. Getting help early can make a real difference and may help prevent financial difficulties from escalating.”
Looking further ahead, the financial markets are pricing in at least four UK interest rate rises by the end of 2027.
That would lift Bank rate to 4.75%.
At one stage on Monday, the markets briefly priced in a rise to 5% (implying five quarter-point increases).
Susannah Streeter, chief investment strategist at Wealth Club, says:
The pressure on the Bank of England to raise rates is mounting, although a hold at 3.75% is still expected tomorrow.
The bigger shift is happening in expectations for the months ahead, with markets now pricing in multiple hikes as the energy shock threatens to keep inflation elevated. That is going to pile on the financial pain for those looking to remortgage or get onto the housing ladder.
With energy costs rising and borrowing costs looking set to surge higher, there looks set to be a fresh squeeze on spending, so consumers are going to become even choosier about where they spend their available cash.
The UK increasingly has a stagflationary flavour, warns analysts at Capital.com, saying:
Inflation is rising because of external energy and input-cost pressures at the same time as the domestic labour market and demand are weakening.
But, they add, a wage-price spiral does not appear to be developing, so the majority of Bank of England policymakers could continue to be patient and resist voting for a rate rise.
Capital.com explains:
So while the Fed and ECB are moving towards tighter policy, the BoE arguably has a stronger domestic case for holding. The crucial distinction is between headline inflation and persistent domestic inflation.
If energy pushes CPI higher but wages, services inflation and employment continue cooling, hiking risks unnecessarily worsening the slowdown. If higher energy costs begin feeding into wages, services and expectations, however, the argument for joining the global tightening cycle becomes considerably stronger.
Bank of England expected to hold interest rates despite rise in inflation
The Bank of England is expected to leave UK interest rates on hold tomorrow, despite inflation rising to 3.1% this morning.
Many economists are predicting this morning that the Bank will vote to maintain Bank Rate at 3.75% at midday on Thursday, when it’s next monetary policy decision is due.
The latest money market pricing shows that a ‘no change’ decision is an 80% probability, with just a 20% chance that the Bank hikes rates to 4%.
The Bank’s remit is to keep inflation at 2% in the medium term, so policymakers won’t want to see CPI over 3%!
But…James Smith, developed markets economist at ING, says there is “very little sign” that the energy shock is broadening out to other parts of the inflation basket, writing:
Take food inflation, which slipped even lower in August to 1.1% year-on-year. Producer price data suggests this could actually go negative in the very near-term. That feels unlikely given the wider energy shock. But then again, fertiliser costs have retreated and so far, the sector is displaying signs of strong competition. In time we expect food inflation to rise as the full effect of the Iran war feeds through, but for now there’s little sign of that happening.
It’s a similar story when we look at goods and services the Office for National Statistics has previously defined as having ‘high’ or ‘very high’ energy intensity. This covers everything from fruit to air fares, to canteens. Even stripping out the distortion from last year’s water and car tax hike, the inflation rate for these energy intensive categories has actually fallen this year, That showed no sign of changing in August.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, predicts the Bank will hold rates this week, but might be forced to increase borrowing costs if inflation rises to 4%.
Pugh says:
“While the MPC can take some comfort from the fact that services inflation stayed at 3.4%, the writing is on the wall for a much bigger move upwards in inflation later this year. The weak labour market data yesterday gives the MPC enough cover to keep interest rates on hold this Thursday but it feels more like “when” rather than “if” the Bank will eventually hike rates now if energy prices remain close to current levels.
“Indeed, looking ahead, inflation will probably rise to around 4% early next year as the supply chain impacts of higher oil prices, elevated agricultural prices and second-round effects start to be reflected in consumer prices. We doubt it will be until 2028 that inflation will get back to the 2% target.”
Updated
UK inflation rate higher than Germany and France
The UK has a worse inflation problem than the two largest eurozone economies
The UK’s CPI inflation rate of 3.1% was higher than the first (or “flash”) estimates of inflation for France (2.7%) and Germany (2.9%) in August, the ONS reports.
But the US is suffering even more, with an inflation rate of 3.4% in August.
City consultancy Capital Economics says there is a “striking lack of any strengthening in domestic inflation” in today’s CPI report.
They told clients:
The 6.9% m/m rise in fuel prices that pushed up fuel inflation from 15.3% to 23.0% and added 0.2ppts to CPI inflation was no surprise.
Instead, most striking was the absence of any obvious spillover from higher energy prices to other items. Core inflation stayed at 2.6% (consensus 2.6%, CE 2.5%) and services inflation remained at 3.4% (consensus 3.5%, CE 3.4%).
It’s still too early for any “second-round” inflation effects to show up, but it’s telling that there have been hardly any “first-round” inflation effects. For example, food & drink inflation stayed at 1.3%. And although airfares inflation nudged up from -11.6% to -8.0%, it remains below February’s +4.8%.
Food and drink inflation remained low in August.
The ONS reports that the 12-month inflation rate for food and non-alcoholic beverages was 1.3% in August 2026, unchanged from July. It was last lower than this in September 2021.
Prices of chocolate confectionery rose by less than a year ago, while meat prices fell slightly in August.
Factory gate inflation rises too
Worryingly, the cost of goods produced by UK factories rose at a faster rate in August too.
Producer output prices – or the cost of goods at the ‘factory gate’ - rose by 3.7% in the year to August, up from 3.3% in July.
ONS chief economist Grant Fitzner explains:
“Rising crude oil and petrol prices increased both the annual cost of raw materials and the price of goods leaving factories respectively.”
Updated
At 3.1% in August, UK inflation is now the highest since March, when CPI hit 3.3%.
ONS chief economist Grant Fitzner says:
“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.
Air fares jumped too
Air fares rose by 6.2% between July and August 2026, the inflation report show.
This was mainly due to long-haul routes where fares rose in August 2026, compared with a fall a year ago.
Motor fuel prices surged 23% in August
Motor fuel prices across the UK surged by 23% in the 12 months to August, today’s inflation report shows.
That’s up from 15.5% in the year to July, with petrol prices hitting their highest level since November 2022.
The Office for National Statistics reports that:
the average price of petrol rose by 9.1p per litre between July and August, to an average price of 161.3p per litre.
Diesel prices rose by 14.2p per litre in August, to an average of 181.8p per litre
Chart: How UK inflation was pushed up by transport costs
Updated
UK inflation rises to 3.1%
Newsflash: Inflation in the UK has risen, putting households under renewed financial pressure.
The Consumer Prices Index, which measures the cost of goods and services across the economy, has risen to 3.1% in the year to August, up from 2.9% in July.
On a monthly basis, CPI rose by 0.5% in August, driven by “Transport, particularly motor fuels”, the Office for National Statistics says.
More to follow….
Updated
Sanjay Raja, chief UK economist at Deutsche Bank, has predicted UK inflation will rise in August to just over 3%.
Raja told clients last week:
After broadly matching expectations in July, we see price momentum pushing up again in August. Some goods inflation, food inflation and a chunky rise in energy prices will likely see inflation take another small step higher to round up the summer.
We’ll find out in 10 minutes if he’s right!
Experts at Pantheon Macroeconomics have suggested that so-called “AI-flation” could also be a factor pushing up UK prices.
Rob Wood, their UK economist, said Pantheon believe higher electronics prices, linked to chip shortages amid the AI boom, could add 0.2 percentage points to inflation.
Introduction: It's UK inflation day
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
We’re about to learn whether the UK’s cost of living squeeze tightened last month.
Official linflation data due at 7am BST is expected to show the headline rate of UK inflation rose in August, further above the Bank of England’s 2% target.
Economists forecast the Consumer Prices Index will have risen by around 3.1% last month, up from 2.9% in the 12 months to July.
Higher fuel costs, due to the jump in the oil price since the Iran war began, are expected to have pushed up the cost of living again.
Petrol and diesel prices are now at their highest level since the conflict began, with a visit to the pumps now the most expensive since 2022.
A jump in inflation could put more pressure on UK government borrowing costs, which yesterday hit the highest level since 2007 as the bond market sell-off continued.
Britain isn’t alone here, though – yesterday, the average 10-year bond yield for the Group of Seven largest economies hit its highest level since mid-2008.
The UK also isn’t alone in having an inflation problem. Last week, US inflation was clocked at 3.4%, which is likely to encourage the Federal Reserve to raise interest rates tonight.
The agenda
7am BST: UK inflation report for August
9.30am BST: UK housing prices and rents report
1.30pm BST: US retail sales report
7pm BST: Federal Reserve interest rates decision
7.30pm BST: Federal Reserve press conference
Updated
