The numbers look manageable. They are not.
August’s inflation figures, published by the Office for National Statistics, showed consumer price growth rising to 3.1pc in the year to August, up from 2.9pc in July. Analysts had anticipated as much. John Healey, who assumed the chancellorship as oil prices surged and global bond markets sold off, might reasonably count himself fortunate that the headline figure was not worse. He should not grow comfortable.
What is driving inflation higher right now?
Transport costs are the primary culprit. Motor fuel prices jumped 23pc in the year to August — a litre of petrol averaged £1.61 last month, the highest level since November 2022. Airline fares rose 6.2pc between July and August alone, as carriers passed on the cost of elevated jet fuel prices and flagged the risk of supply shortages. Electricity, gas and other household fuels climbed 6pc over the same twelve-month period, with heating oil accounting for a disproportionate share of that increase.
The common thread running through each of these pressures is geopolitical. Donald Trump’s military campaign against Iran, launched in February and declared won on multiple occasions since, has disrupted energy markets with considerable force. Conflicts remote in geography have a reliable habit of arriving on domestic doorsteps through the price mechanism. This one is no exception.
How bad could it get?
Considerably worse. Matt Swannell, chief economic adviser to the Item Club — which employs the same forecasting model as HM Treasury — expects inflation to accelerate to 4.5pc at the start of next year, more than double the Bank of England’s 2pc target. “Inflation will accelerate further over the next six months,” he states plainly. “Rising oil prices are continuing to feed through to prices at the petrol pump.”
The energy price cap structure amplifies the problem rather than containing it. Ofgem has already confirmed a 4pc rise in October. Based on current wholesale gas prices, Swannell warns that a further increase exceeding 20pc is probable in January. Households will not feel the full force of surging wholesale costs until that point — meaning the political and economic pain is, in large part, deferred rather than avoided.
Gas prices have reached a four-year high. Jess Ralston of the Energy and Climate Intelligence Unit frames the situation with appropriate directness: “It’s a stark reminder that conflicts thousands of miles away can still hit households here.” That reminder will grow considerably starker as winter approaches.
What does this mean for the government?
For a Prime Minister whose central electoral pledge centres on easing the cost of living, the trajectory is awkward. The British economy did grow by a healthy 0.4pc in July — unusual for that month and not unwelcome — but sustained growth offers limited comfort when household energy bills are set to spike sharply in January. Real income pressures tend to concentrate political discontent far more effectively than aggregate GDP figures disperse it.
The fundamental difficulty is structural. Britain remains heavily exposed to global energy price volatility, and the geopolitical environment shows no sign of stabilising. As long as the conflict in Iran persists, the strain on energy markets will continue to compound. The August inflation print, in other words, is not a warning signal. It is the opening chapter.