UK inflation forecast to rise to 3.1% in August as fuel costs climb

UK government borrowing costs hit highest level since 2007

The UK Office for National Statistics is scheduled to publish its August Consumer Prices Index report at 7am BST on Wednesday. Economists polled by The Guardian project a year-on-year rate of about 3.1%, up from the 2.9% recorded for the 12 months to July and further above the Bank of England’s 2% target.

Higher fuel costs are the expected driver. The Guardian attributes the projected acceleration to the jump in oil prices since the Iran war began. Petrol and diesel prices at UK pumps are now at their highest level since the conflict started, and a forecourt visit is the most expensive since 2022, according to the live blog.

The release lands against a backdrop of climbing UK borrowing costs. UK government borrowing costs hit their highest level since 2007 on Tuesday as a global bond market sell-off continued, The Guardian reports.

The pressure is not confined to Britain. The average 10-year bond yield for the Group of Seven largest economies reached its highest level since mid-2008 on Tuesday, according to The Guardian.

The United States is also contending with elevated inflation. Last week, US inflation was reported at 3.4%, a figure The Guardian says is likely to encourage the Federal Reserve to raise interest rates at its meeting later Wednesday.

A further rise in UK inflation could add to that pressure. The Guardian noted that a jump in inflation could put more pressure on UK government borrowing costs, on top of the sell-off that has already pushed UK yields to their highest level since 2007.

Wednesday’s economic calendar is dense. Beyond the 7am BST UK inflation report, the schedule includes UK housing prices and rents data at 9:30am BST, US retail sales at 1:30pm BST, the Federal Reserve’s interest rate decision at 7pm BST, and a Federal Reserve press conference at 7:30pm BST.

With the jump in oil prices since the Iran war began and pump prices at their highest since the conflict started, the report arrives as the Federal Reserve is expected to raise interest rates at its Wednesday meeting.