UK Inflation Rises to 3.1% — What It Means for Interest Rates, Savings and Mortgages
Petrol at its most expensive since 2022. A second straight rise in the annual inflation rate. And the underlying numbers telling a calmer story than the headline. Here's what actually happened in August, and what it means for your money.
The headline number, and the other measures alongside it
CPI rose to 3.1% in the year to August, up from 2.9% in July — a 0.5% monthly rise, compared with 0.3% in August 2025. CPIH (the ONS's preferred measure, including owner-occupiers' housing costs) rose to 3.3%, up from 3.1%. RPI, still used in some pay negotiations, rose to 3.4%, up from 3.2%. All three measures moved in the same direction by a similar margin — this wasn't a quirk of one particular index.
This is now the highest CPI reading in five months, and the second straight increase in the annual rate after a period of steady falls earlier in the year.
What actually drove it — petrol, mostly
Transport, and specifically motor fuels, made the largest upward contribution to the change in the annual rate between July and August. Transport prices rose 4.6% in the year to August, up from 3.6% in July. Motor fuel prices alone were 23.0% higher than a year earlier, up sharply from 15.5% growth in July.
In cash terms: average petrol prices rose to 161.3p a litre in August — the highest since November 2022 — up around 9.1p a litre on July. Diesel rose 14.2p a litre to 181.8p. Airfares added to the transport contribution too, up 6.2% between July and August, driven by long-haul routes.
Behind the fuel price rises sits the same underlying story as the Bank of England's own analysis: continued conflict in the Middle East pushing global oil and gas prices higher and keeping them volatile.
The part of the story the headline number hides
Core CPI — which strips out energy, food, alcohol and tobacco — held at 2.6%, exactly unchanged from July. Services inflation, an important indicator of domestic price pressure monitored by the Bank, also held at 3.4%. Food inflation stayed at 1.3%, its lowest level since 2021.
In other words, energy — particularly motor fuels — was a major driver of the rise in headline inflation, while the main measures of underlying CPI pressure were unchanged. Goods inflation did rise, from 2.2% to 2.7%, with energy making a large contribution. That distinction matters because the Bank is watching whether the energy shock feeds into wages and broader price-setting. So far, the Bank says indirect pass-through has been limited, although it continues to monitor the risk of second-round effects.
| Measure | July | August |
|---|---|---|
| CPI (headline) | 2.9% | 3.1% |
| CPIH | 3.1% | 3.3% |
| RPI | 3.2% | 3.4% |
| Core CPI | 2.6% | 2.6% (unchanged) |
| Services CPI | 3.4% | 3.4% (unchanged) |
| Transport annual rate | 3.6% | 4.6% |
| Food inflation | 1.3% | 1.3% (unchanged) |
What it meant for interest rates
This 3.1% reading landed the day before the Bank of England's 17 September rate decision, and it was significant enough — 1.1 percentage points above target — to trigger a statutory open letter from the Governor to the Chancellor explaining why. Despite that, the MPC's vote didn't move from July: still 6–3 to hold Bank Rate at 3.75%, with the same three members (Megan Greene, Catherine Mann and Huw Pill) voting for a rise. The Bank's own reasoning leaned heavily on the same core-versus-headline distinction covered above — read the for exactly why the vote held even as the headline number rose.
What it means for your money
Mortgages: Bank Rate itself didn't change following this data. If your mortgage directly tracks Bank Rate, there was therefore no Bank Rate-driven change to your rate or payment, subject to your lender's product terms. New fixed-rate pricing depends on swap rates, which respond to inflation expectations rather than a single data release — pricing had already been adjusting through September ahead of both the CPI print and the MPC decision.
Savings: Higher inflation erodes the real value of cash sitting in low-rate accounts faster — worth checking whether your easy access rate is still competitive rather than assuming it's kept pace. Our compares current top rates.
Household budgets: Motor fuel prices were the clearest pressure in August, while food inflation remained at 1.3%. That means households that drive regularly may have felt the latest inflation increase more directly at the petrol pump than in their weekly food shop.