The UK’s stubborn inflation and higher prices are not going anywhere

Experts have warned that the UK is set to face stubborn inflation over the coming years, squeezing households and businesses.

Data published this week shows UK inflation held steady at 3.8% in August, the same as July. Core inflation registered 3.6%, while services inflation slowed to 4.7%, compared with 5.0% in July, highlighting the persistence of domestic price pressures.

Food inflation eased modestly to 5.1%, having been 4.9% last month, but grocery prices remain elevated, echoing recent data showing only a gradual slowdown.

“This outcome broadly confirms forecasts that inflation would hover around 4% through the autumn, with expectations for a slow descent beyond that, potentially not hitting 2% until 2027,” said Lindsay James, Investment Strategist at Quilter:

With regular wage growth running at 4.8%, the risk is that services inflation continues to prove stubborn, making the Bank of England wary of cutting rates prematurely, she said.

“While pay growth has slowed a touch from earlier in the year, it remains strong enough to fuel inflationary pressures, and real pay gains are still only marginal.”

For the wider economy, today’s figures underline the higher-for-longer interest rate environment, James said.

“That will keep pressure on households already contending with elevated living costs and on businesses facing squeezed demand. Growth risks remain tilted to the downside in the second half of the year, and the labour market could soften further if wage pressures collide with slower activity.”

James added that stubborn inflation also complicates the fiscal outlook for the government.

“Elevated benefits indexation and higher debt interest payments from the UK’s large stock of index-linked gilts mean the Chancellor will have even less room for manoeuvre when she delivers the budget at the end of November.

“That reality will shape how Labour balances fiscal credibility with its policy ambitions. For investors, the key takeaway is not a resurgence of runaway inflation, but a plateau that delays relief and keeps yields and borrowing costs elevated for longer.”

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