An increase in inflation to 3.1% in the year to August has been confirmed by the Office for National Statistics (ONS). This is a rise from 2.9% in July, which is the second consecutive jump in inflation, and it’s predominantly due to soaring fuel prices.
What has caused another inflation rate increase?
The ONS has stated that transport costs, particularly motor fuels, are the largest contributor to the inflation rate rise. Costs in the transport sector rose to 4.6% in the year to August from 3.6% the previous month.
A year-on-year comparison shows that between July and August 2026, petrol prices rose by 9.1p per litre against a much smaller rise of 0.3p per litre between July and August 2025. The continuing increase in petrol and diesel prices is due to global oil supply disruption caused by the Middle East conflict.
Airfares have also contributed to the jump in inflation, particularly for long-haul journeys. An increase of 6.2% occurred between July and August, when many travelled abroad for the summer holidays. Food prices remained steady, with the same 1.3% rate of inflation in the year to August as in the year to July.
How will this increase in inflation affect interest rates?
A day ahead of the next base rate review by the Monetary Policy Committee (MPC), a further rise in inflation isn’t particularly good news. However, economists predict that the current base rate of 3.75% will be kept the same, despite inflation veering further away from the Bank of England’s 2% inflation target. This is because core inflation and inflation in the service sector are fairly stable and the UK economy is remaining resilient, despite the current global uncertainty.
Inflation is expected to keep rising for the rest of the year, however, as rising oil costs continue to have an impact. Cost pressures on food pricing are also expected to filter through due to the droughts being experienced, the ongoing Middle East conflict and El Niño weather patterns. There’s also the energy price cap increase to consider, with its effect on inflation expected to show in October’s figures.
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