Inflation stayed at 3.8% in August, the same level as July, showing that price growth has stalled for now but remains well above the Bank of England’s 2% target. While some sectors saw falling costs, others continued to rise, meaning many households are still feeling financial pressure.
Key points at a glance
- The Consumer Prices Index (CPI) stayed at 3.8% in the 12 months to August 2025, unchanged from July.
- Monthly CPI rose by 0.3% in August, the same as this time last year.
- Transport costs, particularly air fares, helped limit overall inflation.
- Rising food prices and higher hotel accommodation costs offset these improvements.
- Housing and household services remain the largest contributor to overall price rises.
What’s driving the numbers
CPI remained stable because cost decreases in some areas were balanced out by increases elsewhere.
Transport
Transport was one of the few areas to help keep inflation steady.
- Air fares increased by just 2.1% between July and August, compared with a much larger 22.2% increase during the same period in 2024.
- Petrol and diesel prices rose slightly month-on-month but were still lower than a year ago.
- Overall, motor fuel prices dropped by 4.9% compared with last year, providing some relief to drivers and helping limit overall inflation.
Housing and household services
Housing costs remain one of the biggest challenges for households.
- Costs for this category rose by 7.4% over the year to August, unchanged from July.
- Housing continues to have the biggest impact on CPI, keeping overall inflation high even when other costs are easing.
Food and drink
Food prices rose again, creating further pressure on household budgets.
- Food and non-alcoholic beverage prices rose by 5.1% in the year to August, up from 4.9% in July.
- This is the fifth consecutive month of rising food costs.
- The biggest increases were seen in vegetables, dairy products such as cheese, and fish.
Restaurants and hotels
The hospitality sector also added upward pressure to inflation.
- Prices rose by 3.8% in the year to August, up from 3.4% the previous month.
- This was mainly due to hotel accommodation prices falling by less than they did last year, pushing the annual rate higher.
Core inflation
Core inflation removes more volatile items like food, energy, alcohol, and tobacco, giving a clearer picture of underlying price trends.
- Core CPI fell slightly to 3.6% in August, down from 3.8% in July.
- This small drop shows some progress, but underlying price pressures remain a concern.
How CPI compares internationally
When comparing inflation with other major economies, CPI here remains higher.
- CPI was 3.8% in August, compared to just 2.1% in Germany and 0.8% in France.
- This gap highlights the ongoing challenge of bringing inflation under control compared to other nations.
What this means for interest rates
With CPI still sitting well above the Bank of England’s target of 2%, and the base rate currently at 4%, no change is expected at tomorrow’s meeting on 18th September.
Policymakers are likely to wait for stronger and more consistent evidence that inflation is easing before making any adjustments. If inflation remains steady or starts to fall over the coming months, discussions around lowering rates may increase, but any action is likely to be gradual rather than immediate.
What this means for you
While CPI has held steady, many households will continue to feel the effects of higher costs, especially in food, housing, and services.
If you are a homeowner or looking to buy, interest rates staying high means mortgage affordability remains an important factor. Fixed-rate deals may still be appealing if you want certainty over your repayments, but every situation is different.
At Kerr & Watson, we can help you understand how these economic conditions affect your mortgage options. Whether you are remortgaging, moving home, or buying for the first time, our team provides clear, tailored advice so you can make confident decisions.
Looking ahead
It’s too early to say if CPI will start to trend downwards in the coming months. Some areas to keep an eye on include:
- Food prices, which continue to rise month after month.
- Housing costs, which remain stubbornly high.
- Core CPI levels, showing the underlying health of the economy.
- Future decisions by the Bank of England on interest rates, which will respond to these trends.
Conclusion
CPI held steady at 3.8% in August 2025, with falling transport costs offset by rising food and hospitality prices. This stability is a small positive sign, but inflation remains well above target, and many households are still struggling with the cost of living.
By planning ahead and understanding your options, you can protect your finances and make informed decisions. At Kerr & Watson, we are here to guide you through these uncertain times with expert mortgage and protection advice.
If you’d like to discuss how the latest changes could affect your mortgage or protection needs, contact our team today.
Read more: Consumer price inflation, August 2025
