Inflation in the United Kingdom climbed to its highest level in five months during the year to August, according to the Office for National Statistics (ONS). The rate of inflation accelerated to 3.1%, up from 2.9% in the previous month, as consumers faced significant price hikes for petrol, diesel, and air travel.
The cost of filling up vehicles soared throughout August as the ongoing conflict in the Middle East continued to disrupt global oil supplies. Brent crude, the global benchmark for oil prices, has recently surpassed $100 a barrel, a sharp increase from the approximately $73 recorded just before hostilities began earlier this year. Overall, motor fuel prices have risen by 23% compared to August of last year.
Between July and August alone, average petrol prices increased by 9.1p to 161.3p per litre. The ONS noted that this is the highest price recorded since November 2022, a period when Russia's full-scale invasion of Ukraine similarly pushed global energy costs higher.
The volatility in oil markets is having a direct impact on small petrol retailers. Goran Raven, owner of the Essex-based station RJ Raven, explained that the situation has a real-time effect on his operations. "Things are down. We've got lots of pressure on us at the moment. I'd say we're about 20% down on this time last year," Raven said. He noted that because his station has small tanks, he requires a tanker almost daily and must pay the daily spot price.
"When the price goes up, we have to go up with it. There's no way around it. The margins here are wafer-thin on fuel. People like to think we're earning a lot on it. Unfortunately, we really aren't. It's single digits of pence we earn per litre."
While rising crude oil and petrol prices have increased the annual cost of raw materials and factory-gate goods, Grant Fitzner, chief economist at the ONS, noted the current impact. Capital Economics observed that these pressures have not yet spilled over into other sectors such as food and drink, where inflation remained at 1.3% in the year to August.
However, Paul Dales, chief UK economist at Capital Economics, warned that further inflation is expected. Dales estimates that a combination of higher oil and gas prices, alongside the "eventual 'first-round' effect of businesses passing on some of their higher energy costs," will lead to inflation peaking at 4.2% in January.
The latest inflation figures move the UK further from the Bank of England's 2% target. The Bank, which uses interest rates to control inflation, currently has the rate set at 3.75% and is scheduled to meet on Thursday to decide on potential adjustments. Chancellor John Healey, who is preparing to announce his first Budget next month, stated: "The war in the Middle East is impacting on inflation worldwide, not just here at home.
In our bills, our weekly shop and at the petrol pumps." Despite these global uncertainties, Healey maintained that the UK economy is proving resilient, pointing to a 0.4% expansion in July, though growth for the second quarter between April and June slowed to 0.4% from 0.6% in the previous period.
Political debate regarding the government's economic management has intensified. Shadow chancellor Andrew Griffith criticized the government, claiming that "jobs tax and employment red tape are being passed on to consumers in the weekly shop and their mad energy policies are pushing up costs and leaving Brits exposed." A Tory spokesperson responded by noting that the energy policies mentioned include a commitment to reaching net zero carbon emissions by 2050 and a "refusal to drill in the North Sea."
To mitigate costs, the government is cutting VAT on household electricity bills from 5% to zero starting 1 October, which is expected to save a typical household about £45 a year. However, this will be partially offset by a 4% rise in the price cap on both electricity and gas bills, meaning a home using a typical amount of energy will pay £60 a year more.
Yael Selfin, chief economist at KPMG, warned that the VAT cut will only partially offset the impact of higher gas prices. "If gas prices remain around current levels, household energy bills could rise by a further double-digit amount from January, with an even larger increase possible if wholesale prices climb further," she said.
For individuals, the rising costs are a significant concern. Emma Ashfield, a nursery worker from Northern Ireland who is raising her eight-year-old daughter, said that everything is already "extremely expensive." She added: "You are trying to keep food on the table, [buy] clothes, trying to provide for them. You would basically need a second job." With winter approaching, she noted that energy costs are a major worry: "I find electric very pricey… and it is costly trying to heat my apartment too.
My wee girl is always wanting the heating on, so that's another thing." Liberal Democrat Treasury spokesperson Daisy Cooper described the situation as a "wake-up call" for the government, stating that the conflict is "hitting British families hard."
