UK inflation jumps to 3.1% as energy costs soar

The U.K.’s annual inflation rate jumped to 3.1% in August, pushed up by surging gasoline and diesel prices.

The print, which was in line with economists’ expectations, marked the first inflation reading above 3% since March.

The country’s Office for National Statistics (ONS) said that the spike was largely driven by rising motor fuel costs, which surged 23% year-on-year.

Inflation rose to 2.9% in July, as a government-regulated price cap on energy costs was revised sharply upward.

Prices are continuing to rise as crude oil prices hover above $100 a barrel. Earlier this week, British motoring body the RAC said petrol and diesel prices had hit, since the Iran war began, with both fuels now at prices not seen in four years.

The U.K., a net importer of energy, is particularly vulnerable to external energy shocks. The country’s inflation rate rose to 2.9% in July, as a government-regulated price cap on energy costs was revised sharply upward.

In August, the cost of electricity, gas and other household fuels jumped 6% year-on-year, the ONS said Wednesday.

The U.K. is still grappling with a cost-of-living crisis sparked by post-pandemic inflation and surging energy costs that arose in the wake of Russia’s full-scale invasion of Ukraine in 2022.

Yields on U.K. government bonds, known as gilts, fell across the curve after Wednesday’s inflation print. The yield on the 30-year gilt — which rose to a 28-year high on Tuesday — was last seen almost 2 basis points lower at 5.907%. The benchmark 10-year gilt yield was nearly 3 basis points lower at 5.365%.

The British pound was flat against both the U.S. dollar and the euro.

The inflation print comes before the Bank of England’s Monetary Policy Committee announces its latest policy update on Thursday. Markets are pricing in more than an 80% chance of the central bank holding its key interest rate steady at 3.75%, according to LSEG data, but are anticipating a hike at its next meeting in November.