UK inflation unchanged as it remains above Bank of England target - what it means for you

The Consumer Price Index (CPI) is the main measure of inflation and this shows how the prices of goods and services have changed over time - here is what it means for you

UK inflation has stayed above the Bank of England target, remaining at 2.2% in the 12 months to August.

This is the same figure that was recorded in July. Inflation had previously hit the Bank of England target of 2% in May this year and it remained at this level in June as well. The previous drop in inflation had paved the way for the first interest rate cut since March 2020 - but Bank of England economists had expected it to rise again.

The Consumer Price Index (CPI) is the main measure of inflation and this shows how the prices of goods and services have changed over time. Inflation data is released by the ONS every month.

What is inflation?

The ONS uses a regularly updated "basket of goods" and services to measure price rises. The ONS releases the latest inflation data every month - but the main CPI figure you see in headlines is used to represent an average. This means the individual prices of some goods may be higher or lower than this central figure.

What does it mean for prices in shops?

When inflation is lower, it does not mean prices have stopped rising - it just means they're going up at a slightly slower rate than before. For example, the rate of inflation is now at roughly 2% - so this means an item that cost £1 last year would now cost £1.02.

How is inflation linked to interest rates?

The Bank of England has put up interest rates to try and lower inflation. The base rate influences the interest rate you're offered by banks and lenders - so when it is higher, borrowing becomes more expensive and this means people have less money to spend elsewhere.

When people spend less money, this brings down demand and lower prices, which should then lower inflation. But a higher base rate has pushed up mortgage payments for millions of homeowners, leaving households financially stretched.

Higher borrowing costs also risks damaging the economy. The base rate stood at just 0.1% in December 2021. It reached a peak of 5.25% in August 2023 and was finally been cut to 5% on August 1. The next base rate decision is due on September 19.

Why did inflation peak?

Inflation peaked at 11.1% in October 2022. It began to rise in 2021 largely due to higher costs of energy and food. Demand for energy increased after Covid and then this was exasperated by the Russian invasion of Ukraine.

The war also pushed up food prices, due to rising costs for fertilisers and animal feed. Both energy and food price rises have come down in recent months, although they are still higher than before.

Will inflation keep rising?

The Bank of England expects inflation to rise to about 2.75% in the second half of this year, following sticky price rises in the service sector and strong wage growth. It then expects inflation will fall back down to 1.7% in 2026, then to 1.5% in 2027.