Rises in petrol, diesel, and airfares pushed UK inflation up to its highest level in five months in the year to August. Inflation accelerated to 3.1% from 2.9%, according to the Office for National Statistics (ONS). The cost of filling up a vehicle soared in August as the conflict in the Middle East continued to disrupt global oil supplies. Petrol prices jumped to their highest for nearly four years, while diesel also rocketed.

Overall, motor fuel prices rose by 23% compared to August last year. Oil hit more than $91 a barrel as the US-Israel war with Iran went on, compared to around $73 just before hostilities began earlier this year. As a result, average petrol prices have continued to climb, rising by 9.1p to 161.3p per litre between July and August.

This is the highest price recorded since November 2022, when Russia's full-scale invasion of Ukraine had pushed up global energy costs. Capital Economics noted that the effect of higher oil prices has not yet spilled over into other areas such as food and drink, where the pace of inflation remained at 1.3% in the year to August. However, its chief UK economist, Paul Dales, warned that bigger rises in inflation are on the way.

Dales estimates that a combination of higher oil and gas prices and 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. Higher oil prices also affect forecourts, with Goran Raven, owner of Essex petrol station RJ Raven, reporting that his business is down by about 20% compared to this time last year. Raven emphasized that changes in oil prices have a 'real-time impact' on his business, as he has to pay a daily spot price for fuel. The rise in inflation means it has moved further away from the Bank of England's 2% target.

The bank uses interest rates to control inflation, with the current rate standing at 3.75%. The Bank of England is meeting on Thursday to decide whether to change it. Prime Minister Andy Burnham said inflation is a concern but the underlying UK economy is resilient. He attributed the inflationary pressure to the situation in the Middle East.

The most recent figures showed that the UK economy expanded by 0.4% in July, boosted by investment in artificial intelligence. However, for the second quarter between April and June, Britain's economic growth slowed to 0.4% from 0.6% in January to March. Looking ahead to his first Budget, which will be delivered by Chancellor John Healey on 28 October, Burnham said: 'We will take difficult decisions to make sure the economy remains on track.' Commenting on inflation, shadow chancellor Andrew Griffith criticized the government's 'jobs tax and employment red tape' and 'mad energy policies' as factors pushing up costs and leaving Brits exposed.

A Tory spokesperson defended the energy policies, including a commitment to reaching net zero carbon emissions by 2050 and a 'refusal to drill in the North Sea.' The government is cutting VAT on household electricity bills from 5% to zero on 1 October, saving a typical household about £45 a year. At the same time, the price cap on both electricity and gas bills will rise by 4%, meaning a home using a typical amount of gas and electricity will pay £60 a year more. Yael Selfin, chief economist at KPMG, said the VAT cut will only partially offset the impact of higher gas prices, which have been rising due to the Iran war and disruption to global supplies, including liquefied natural gas.

She warned that 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. Emma Ashfield, a nursery worker from Northern Ireland, said everything is already 'extremely expensive.' She noted that with winter approaching, energy costs are another worry, as she finds electricity very pricey and heating her apartment costly. Liberal Democrat Treasury spokesperson Daisy Cooper accused the government of being 'egged on' by the Conservatives and Reform UK to engage in 'Trump's illegal war,' which is once again hitting British families hard. This, she said, must be a 'wake up-call' for the government.