16th September 2026
CPI inflation rose to 3.1 per cent in August, up again from 2.9 per cent in July, in line with market expectations, driven largely by higher petrol and diesel prices, the Resolution Foundation said today (Wednesday). With price rises not expected to peak until the winter, the renewed climb has ramifications for families, the Bank of England, and the new Prime Minister’s first Budget.
Petrol provided the largest single upward pressure, with pump prices up 12 pence per litre (7.7 per cent) between July and August. Unwelcome as this is for motorists, the Government should resist targeting extra support at the forecourts: against a constrained fiscal backdrop, there are more effective ways to reach the households who are struggling most.
Energy bills remain the other serious pressure on budgets, still 26 per cent higher in real terms than five years ago, with the price cap set to rise in October, and again in January, possibly by a significant amount. Rather than extending the fuel duty freeze, which would disproportionately benefit higher-income households, it would instead be more effective to channel cost of living support through targeted discounts on household energy for lower-income households.
There was better news on food, where inflation remained at its lowest level in nearly five years (1.3 per cent in both August and July). But that relief is likely to prove temporary, as the effects of higher oil prices from conflict in the Middle East feeds through to prices in the coming months.
Inflation has now topped 3 per cent just five months after it last breached that mark (3.3 per cent in March) – once again heading in the wrong direction, and driven largely by intensifying pressures in the Middle East. That is bad news for families struggling with the cost of living, and it sharpens the challenge for the Bank of England, which sets interest rates tomorrow, and for a new Prime Minister and Chancellor facing a tough first Budget given large rises in the cost of servicing the national debt.
James Smith, Chief Economist at the Resolution Foundation, said:
“Inflation is heading in the wrong direction again, topping 3 per cent in August on the back of higher petrol prices – and with the peak not due until winter, there is more to come. That is unwelcome news for families, the Bank of England, and a Prime Minister preparing for his first Budget.
“Even though underlying domestic pressures are still easing, this fresh bout of inflation is being driven by tensions in the Middle East that are beyond the Government’s control, and the rate of inflation is likely to rise further over the winter.
“With money tight and living costs rising, the Government should resist throwing money at costly blanket support. It would get far more bang for its buck by targeting help at lower-income families feeling the squeeze most – through targeted energy discounts – if bills rise sharply in January as now looks increasingly likely.”