The UK inflation stood at 3.8 percent in August 2025, the same as it was in July, and went against the forecast of economists who thought that it would rise to 3.9 percent. The Consumer Prices Index remained stable amidst the increasing food prices and the fuel prices burden, and the decrease in airfare offered the much-needed downward force. This stability precedes the September meeting by the Bank of England, and the policy makers are likely to retain the interest rates at 4 per cent as the inflationary pressure continues to be experienced.
Food inflation speeds up in the fifth consecutive month
According to ONS data, the 12-month inflation rate of food and non-alcoholic beverages stood at 5.1% in August 2025 (compared with 4.9% in July). This is the fifth rise in the annual rate in a row and the most elevated since January 2024, although still a long way off the highest since early 2023. Food and non-alcoholic drinks prices increased by 0.4% in August 2025, two times less than they increased last year by 0.2 percent.
Change in the rate was positively influenced by small upward effects on the change of the rate of 3 of 11 classes of food and non-alcoholic beverages, which are vegetables; milk, cheese, and eggs (particularly cheese); and fish. These were partly counterbalanced by minor negative impacts of bread and cereals, and oils and fats. According to MoneyWeek, inflation remained unchanged at 3.8% in August, falling to the same level as it fell in July.
Airfares have an important negative influence on inflation
According to the Office of National Statistics, airfares contributed the most to the change in the monthly CPI, which was negative, whereas restaurants and hotels, and motor fuels were contributors to more movement upward. The airfares increased by 2.1 percent in July and August 2025, as compared to the increase of 22.2 percent in July and August 2024. The low index level in July could be attributed to the lesser decrease in the monthly change this year.
Core inflation is encouragingly moderate
Among the favorable trends in the report by August, there is the fact that core and services inflation decreased in comparison to July. Core CPI also stood at 3.6% as compared to 3.8% before. CPI of services dropped to 4.7, against 5%. Core inflation removes those categories which are prone to short, sharp price movements, such as food and energy, and represents a useful indicator of the extent to which price pressures have been entrenched.
Services inflation includes hotel accommodation, airfares, and school fees, among others. The services constitute approximately 80% of the UK economy; hence, this is a significant measure. A silver lining in the rising services and core inflation is that underlying price pressures are turning out to be less sticky, said Suren Thiru, the economics director of the Institute of Chartered Accountants in England and Wales.
The Bank of England was likely to be wary
The policymakers are also supposed to maintain rates at 4%. Recently, the governor of the Bank of England, Andrew Bailey, admitted that the risk of inflation had increased, which significantly questioned the possibility of further rate cuts in the future. The Bank of England predicts that inflation will slow down gradually after reaching its peak in September, and will eventually fall to the target of 2% in the second quarter of 2027.
The current level of UK inflation of 3.8 percent offers a reprieve over the increasing cost pressures, but the reprieve is unlikely to last long with the expected September peak. The moderate core and services inflation is a positive indication that price pressures are possibly declining, and this will provide room for future monetary policy flexibility. But ongoing food inflation and housing prices remain straining household budgets, and this supports the cautious stance of the Bank of England in making interest rate changes.