Persistent Inflation Rates Exceeding 3% Extend Until 2026
Professor Huw Dixon, in a recent article, delves into the latest inflation figures for August 2025, offering insights into the UK's economic landscape.
The UK's Annual CPI Inflation held steady in August at 3.8%, remaining above the 3% mark. Goods price inflation increased slightly from 2.7% to 2.8%, while services annual inflation dropped from 5.0% in June to 4.7% in August. Core inflation (CPI excluding food and energy) fell slightly to 3.6%.
In terms of month-on-month inflation, the new rate was 0.3%. The top ten items with the highest inflation include Internet Blu-ray Disc, Ebooks, Music Downloads, Light Bulb Smart/Wifi, Fruit Juices from Concentrate, Action Camera, Girls Jacket (5-13 Years), Euro Tunnel Fares, CD Album (Top 40), and Infant's Trousers 0-2 Years.
On the other hand, several items experienced negative inflation rates. The ten items with the highest negative inflation are listed in Table 2. Notable mentions include Hotel Advance Price for 1 night (-10.23%), Pre-Recorded DVD (Film) (-9.09%), Computer Game 1 (-16.06%), Computer Game 2 (-29.25%), Mens Shorts (not swimwear) (-9.62%), Electric Razor (-8.70%), Toothbrush (-11.71%), and Roadside Recovery Service (-27.26%).
The author predicts that inflation is most likely to be in the "high to medium" range for the rest of 2025 and into early 2026. Under all three scenarios (medium, high, and very high), inflation remains above 3% until April 2026. Even with the "low" scenario, inflation remains above 3% for the rest of 2025.
It's worth noting that the direct effects of Tariffs on UK inflation are expected to be minor. The forecast assumes that geopolitical tensions do not deteriorate. The Bank of England (BoE) itself has made the forecast that inflation will return sustainably to the 2 percent target, as communicated by its Monetary Policy Committee (MPC) around September 2025. The MPC decides on the appropriate restrictive monetary policy until the risks to a sustainable return of inflation to the 2 percent target are resolved.
For a more comprehensive analysis, readers are encouraged to refer to the NIESR CPI Tracker, Economics Observatory articles, and the NIESR Economic Outlook. The author also suggests keeping an eye on the BoE's future communications regarding monetary policy decisions.
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