Petrol and diesel price rises push UK inflation higher
Fuel and flight costs lift UK inflation to 3.1%
Ninoda.com – British households faced a renewed rise in living costs in August as more expensive petrol, diesel and air travel pushed inflation to its highest point in five months. The annual rate increased to 3.1%, up from 2.9% in July, moving further above the Bank of England’s 2% target.
Drivers experienced some of the sharpest price pressures. Motor fuel costs were 23% higher than a year earlier, while the average price of petrol rose by 9.1p per litre between July and August to reach 161.3p. That was the highest recorded average since November 2022, when the full-scale Russian invasion of Ukraine drove global energy prices sharply higher.
Diesel prices also climbed, adding to the expense of everyday journeys and commercial transport. The increases reflect a broader jump in oil markets as conflict in the Middle East continued to affect international supplies.
Oil market pressures reach the forecourt
Oil had previously traded at about $73 a barrel before hostilities began earlier in the year, but it rose above $91 as the US-Israel war with Iran continued. In recent days, Brent crude, the main global oil benchmark, has exceeded $100 a barrel.
Fuel retailers can feel such movements almost immediately, particularly businesses that need frequent deliveries. Goran Raven, who owns the RJ Raven petrol station in Essex, said higher wholesale costs were placing substantial strain on smaller forecourts.
“Things are down. We’ve got lots of pressure on us at the moment. I’d say we’re about 20% down on this time last year.”
Raven said oil-price shifts have a direct and rapid effect on his operation because the station has relatively small storage tanks and needs a tanker nearly every day.
“We only have small tanks here, so we need a tanker almost every day at the moment and we have to pay a daily spot price.”
“When the price goes up, we have to go up with it. There’s no way around it.”
He also stressed that the amount earned on each litre sold is limited.
“The margins here are wafer-thin on fuel. People like to think we’re earning a lot on it. Unfortunately, we really aren’t. It’s single digits of pence we earn per litre.”
Summer travel adds to the increase
Air fares made a further contribution to August’s inflation figure. The month is a particularly busy period for school-holiday trips, and the cost of flying rose during the main summer getaway season.
Not every part of household spending showed the same pace of price growth. Food and drink inflation remained at 1.3% over the year to August, suggesting that the immediate effect of more expensive crude oil had not yet spread widely through supermarket prices.
However, economists warned that the impact could become more visible if businesses face persistently higher energy and transport bills. Raw materials and factory-gate prices were both affected by rising crude oil and petrol costs, creating the potential for wider pressure as companies decide how much of their increased spending to pass to customers.
Capital Economics chief UK economist Paul Dales said the current figures may not capture the full impact of energy-market disruption.
“Everyone knows that bigger rises in inflation are on their way.”
Dales expects higher oil and gas prices, alongside the eventual first-round effect of companies passing on some energy costs, to take inflation to a peak of 4.2% in January.
Grant Fitzner, chief economist at the Office for National Statistics, said the increase was already evident in the supply chain.
“Rising crude oil and petrol prices increased both the annual cost of raw materials and the price of goods leaving factories respectively.”
Interest-rate decision approaches
The stronger inflation reading places added attention on the Bank of England’s meeting on Thursday. Interest rates stand at 3.75%, and policymakers use them to influence demand and bring inflation back towards the 2% goal.
Higher borrowing costs can restrain spending, but energy and fuel shocks are difficult for central banks to address directly because they are driven by global supply conditions. For households, the immediate issue is whether rising transport and utility costs begin to affect a broader range of essentials.
Chancellor John Healey said the effects of the Middle East conflict were being felt beyond Britain.
“The war in the Middle East is impacting on inflation worldwide, not just here at home. In our bills, our weekly shop and at the petrol pumps.”
“Despite this serious global uncertainty, our UK economy is proving resilient.”
The latest available data showed the UK economy grew by 0.4% in July, supported by investment in artificial intelligence. Growth over the April-to-June quarter was also 0.4%, although that represented a slowdown from the 0.6% recorded between January and March.
Energy bills remain a concern
Household energy costs are set to change again on 1 October. The government will reduce VAT on domestic electricity bills from 5% to zero, a move expected to save a typical household about £45 a year. At the same time, the price cap for electricity and gas will increase by 4%.
For a household using a typical amount of gas and electricity, the higher cap means an additional £60 a year. The VAT reduction will therefore offset part, but not all, of that rise.
Yael Selfin, chief economist at KPMG, said higher gas prices were being driven by the Iran war and disruption to global supplies, including liquefied natural gas. If prices remain near current levels, she warned that household energy bills could face another double-digit increase from January.
For consumers, the August figures underline how quickly international energy markets can affect everyday budgets. A more costly fill-up, pricier holiday travel and higher utility bills can each seem manageable in isolation, but together they may leave households with less room for other spending as the winter approaches.
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