This morning has brought a further reminder of one of my themes from the past which is that the UK has a tendency to be an inflation nation.
The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to August 2025, unchanged from July.On a monthly basis, CPI rose by 0.3% in August 2025, the same rate as in August 2024……..The August and July 2025 figures were the joint-highest recorded since January 2024, when the rate was 4.0%.
As you can see the annual inflation rate continues to be nearly double the 2% target and the monthly rise of 0.3% suggests there is no sign of a change for the better. As this is a day when the Bank of England votes on interest-rates ( for newer readers it votes the day before the announcement running the risk of leaks) it should be reminded of this.
Interest rates have slowed down price rises (inflation) over the past two and a half years, so we are able to cut interest rates again today, to 4%.
The cut in interest-rates was mostly forced by the Governor Andrew Bailey and the Minutes involved not a little dissembling.
The path of disinflation in underlying domestic price and wage pressures has generally continued, albeit to different degrees. Twelve-month CPI inflation increased to 3.5% in 2025 Q2, owing to developments in energy, food and administered prices.
As you can see disinflation now includes higher inflation and if we look ahead expectations of further rises.
CPI inflation is forecast to increase slightly further to peak at 4.0% in September.
The dissembling starts with looking back 2 and a half years to avoid having to say it has been rising this year. In fact they then admitted the inflation outlook was worse than before.
Overall, the MPC judges that the upside risks around medium-term inflationary pressures have moved slightly higher since May.
For those who followed the voting breakdown Governor Bailey voted for a cut based on the forecasts made by Chief Economist Huw Pill who did not think they were enough for a cut.
Moving onto the decision to be made later and announced tomorrow I am expecting a further easing of policy in that I am expecting them to slow the current rate of QT from £100 billion a year to help reduce the pressure on UK bond yields.
Monthly Inflation
Food
We had been expecting more rises in food prices and we got them.
On a monthly basis, food and non-alcoholic beverages prices rose by 0.4% in August 2025, compared with a rise of 0.2% a year ago.
That pulled the annual rate even higher.
The 12-month inflation rate for food and non-alcoholic beverages was 5.1% in August 2025, up from 4.9% in July. This was the fifth consecutive increase in the annual rate and the highest recorded since January 2024, but it remains well below the peak seen in early 2023.
It is indeed well below the peak but a more balanced analysis would point out that the rises are on top of the previous surge. The leader of the pack this time around was “Sugar, jam, syrups, chocolate and confectionery” which rose by 2% and presumably reflected the rise in cocoa prices. There is a chocolate measure and it rose by 3.2% on the month making the annual rate 15.4%. I have to confess that the own brand bar of fruit and nut that I like has risen by much more than that.
Meat prices rose by 0.5% with one area in particular attracting attention.
Retail beef prices in the U.K. are up 25% from a year ago (exacerbating the outsize impact that the cost of the supermarket’s trolley has on inflation perceptions) ( @JavierBlas)
I disagree with him here as food is a necessity of life and we are in ” I cannot eat an I-Pad” territory.
There were also some falls with oils and fats some 1.3% lower and bread and cereals 0.3% lower.
Clothing and Footwear
Prices here rose by 1% on the month with the only detail given being that it was for garments.
Transport
This was quite a swing factor as there was an upwards influence.
The average price of petrol rose by 0.3 pence per litre between July and August 2025, compared with a fall of 2.1 pence per litre between July and August 2024….Similarly, diesel prices rose by 0.8 pence per litre in August 2025, compared with a fall of 2.6 pence per litre in August 2024.
But it got swamped by another move which again illustrates my theme that the Office for National Statistics has completely lost control of the measurement of airfares.
Air fares rose by 2.1% between July and August 2025, compared with a rise of 22.2% between the same months in 2024.
As so often the issue appears to be in the measurement of airfares in Europe.
The smaller monthly rise in August 2025 resulted from a relatively high July index, which was probably influenced by the timing of the flights priced in relation to school summer holidays, particularly return flights from Europe. These return European flights were during the school term in July 2024, but during the school holidays in July 2025, potentially making them more expensive this year.
My understanding is that only a few flights are in fact sampled helping to create the problem. Anyway it reduced the annual rate bu 0.14% this time around. Along the way I spotting a sharp rise in sea fares of 6.7%.
Cost of Living
There was a bit of nuanced relief if I switch to our cost of living measure the Retail Prices Index or RPI.
The all items RPI annual rate is 4.6%, down from 4.8% last month…..The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 4.4%, down from 4.7% last month.
So the annual rate fell and the derivative the Bank of England used to target fell at a faster rate. However there is much less relief from the monthly rate of 0.4%. Plus of course it still gives a higher reading in annual terms.
House price may feel low but it still worries me that we are seeing reported rises at a time where mortgage rates are much higher than they were.
Average UK house prices increased by 2.8%, to £270,000, in the 12 months to July 2025 (provisional estimate); this annual growth rate is down from 3.6%, in the 12 months to June 2025.
Average house prices increased to £292,000 (2.7%) in England, £209,000 (2.0%) in Wales, and £192,000 (3.3%) in Scotland, in the 12 months to July 2025.
The monthly rise was 0.3%.
Comment
The inflation nation theme has been backed up by the Euro area CPI for August being confirmed at 2% compared to our 3.8% on the same measure. If we look ahead we see another example of institutional incompetence as the ONS are still unable to release any producer price figures. There should be some anti-inflationary pressure from the way that the UK Pound £ is above US $1.36 which is rather different to mid-January when it briefly fell below US $1.21. So let us cross our fingers for a reduction in the present inflationary pressure.
