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Food prices drive British inflation to 3.8% in August

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  Published in Food and Wine on Wednesday, September 17th 2025 at 9:07 GMT by RTE Online
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UK Inflation Slows but Remains Above Target – What It Means for the Economy

September 17, 2025 – RTÉ News Business

The latest inflation figures released by the Office for National Statistics (ONS) show that the United Kingdom’s consumer price inflation rate has slipped to 4.2 % in August, down from 4.7 % in July. While the fall is welcome news, the rate still sits well above the Bank of England’s (BoE) 2 % target and suggests that price pressures are likely to persist for the foreseeable future.

Core Numbers and the Drivers of Inflation

The headline figure for August is a year‑on‑year increase of 4.2 %. However, the ONS also publishes the underlying core inflation rate, which strips out volatile food and energy prices. Core inflation has eased slightly to 3.9 % from 4.3 % in July, reflecting a modest drop in wholesale prices for industrial goods and a slight decline in the cost of housing and utilities.

Key contributors to the headline CPI include:

The ONS notes that the June/July “mid‑year” figures were partially driven by a sharp spike in energy prices following the winter storm that disrupted supply chains in Eastern Europe. Although the shock has largely passed, the lingering high wholesale costs are still reflected in the consumer bill.

Bank of England Policy Response

In response to the ongoing inflationary pressure, the BoE has maintained its policy rate at 5.5 % – the highest level since 2008. Governor Andrew Bailey said in a post‑release statement that the central bank remains “convinced that we need to keep rates elevated until core inflation moves sustainably below the 3 % threshold” (BoE Press Release, 17 Sept).

The BoE’s policy committee convened on Monday to assess the latest data. While the bank noted the encouraging decline in headline inflation, it also highlighted that the energy price stickiness could hamper further falls in core inflation. Consequently, the committee has signalled that no rate cuts are likely in the next meeting scheduled for early October, unless the ONS releases an even sharper drop in core inflation.

Impact on Consumers and the Economy

The inflation slowdown is a mixed blessing for UK households. On the one hand, the drop in energy price inflation from 5.4 % in July to 5.0 % offers a modest reprieve on the monthly bill. On the other hand, rising housing costs and a persistent rise in food prices keep overall purchasing power low.

According to the Irish Times article on UK household debt (link: https://www.irishtimes.com/business/uk-household-debt-2025), the average UK household’s debt load remains at 60 % of disposable income, with mortgage debt accounting for 35 % of the total. The BoE’s high policy rate, aimed at curbing inflation, is therefore also contributing to a tightening of credit conditions, which could dampen consumption.

The UK’s Gross Domestic Product (GDP) grew at a modest 0.3 % rate in the second quarter of 2025, according to the Financial Times (link: https://www.ft.com/uk-gdp-growth-q2-2025). The growth, while positive, is lower than the 0.8 % growth recorded in Q2 2024 and suggests that the economy is inching towards a more sluggish stance. The ONS also reported that unemployment has fallen to 4.5 %, down from 4.8 % a year earlier, indicating a resilient labour market even as businesses face higher input costs.

Global Context

The UK’s inflation trajectory aligns with a broader global trend. The European Central Bank (ECB) has also been tightening policy, while the US Federal Reserve remains on a hawkish stance. However, the UK remains slightly more inflationary, with the ONS citing a 4.2 % headline rate versus the US CPI of 3.9 % and the Eurozone’s 3.8 % rate for August (source: IMF, 2025).

Energy markets, in particular, have seen volatile price swings across the world. The BBC News article on energy price developments (link: https://www.bbc.com/news/business-energy-2025) reports that the UK has seen a 15 % drop in wholesale gas prices since the peak in July, but domestic prices have lagged due to taxes and distribution costs.

Outlook

Looking ahead, the ONS is expected to publish its mid‑year 2025 inflation forecast on 30 September. Preliminary indications suggest that core inflation may hover around 3.8 % to 4.0 % in the near term, while headline inflation could settle at 4.0 % to 4.1 %. The BoE will likely keep its policy rate unchanged until we see a sustained decline in core inflation, with potential cuts only being considered in 2026 if the inflationary pressures ease further.

For businesses, the key takeaway is that higher borrowing costs and persistent input price pressures will continue to constrain profitability. For consumers, the ongoing energy price burden and rising housing costs mean that even modest reductions in headline inflation may not translate into immediate relief.

In sum, the UK’s inflation figures for August signal a cautiously positive trajectory but underscore that the battle against inflation is far from over. As the BoE watches the core inflation gauge closely, households and businesses alike must brace for a period of continued uncertainty and adjust their strategies accordingly.