Food prices rose again in August, marking the fifth consecutive monthly increase. Official figures show the fastest growth since early last year.
The cost of food and non-alcoholic drinks increased 5.1% over the year. Beef, butter, milk and chocolate recorded the largest rises.
Slower growth in other areas, including air fares, kept overall inflation steady at 3.8%, the same as in July.
Economists said supermarkets are passing higher minimum wage and National Insurance costs directly onto shoppers.
Bank of England expected to hold interest rates
Inflation remains above the Bank of England’s 2% target. Analysts widely expect policymakers to keep interest rates steady this week.
Chancellor Rachel Reeves acknowledged the pressure on households. She pledged to reduce costs and support families facing rising bills.
Her first Budget increased the minimum wage and employer National Insurance Contributions. Businesses warned these measures would push prices higher.
Reeves promised no new borrowing or additional taxes, though speculation about the November Budget continues.
Shadow chancellor Sir Mel Stride described the figures as “deeply worrying” and said Labour’s policies are fuelling inflation.
UK inflation rises faster than Europe
The Office for National Statistics reported the fastest increase in food and drink prices in 19 months.
It said UK inflation remains far above major European economies. France recorded 0.8% in August, while Germany posted 2.1%.
Yael Selfin, chief economist at KPMG, said Britain has become an “outlier” compared with other major economies.
She added higher employer National Insurance Contributions pushed business costs up, which companies passed to consumers.
Essentials drive household budgets higher
Beef and veal prices jumped nearly 25% in the year to August. Butter climbed almost 19%, while chocolate rose 15.4%.
The British Retail Consortium warned food inflation is outpacing wages, which grew 4.7% between May and July.
Director Kris Hamer said families are struggling as pay fails to keep pace. Clothing and footwear prices fell as retailers cleared summer stock.
Staples such as cereals and pasta also saw small price drops in August.
Interest rate cuts remain uncertain
ING economist James Smith said inflation stuck at 3.8% complicates Bank of England decisions.
He warned food inflation could rise further before year-end. The Bank has already cut rates five times since last August, lowering borrowing costs to 4%.
Officials expect inflation to peak at 4% in September. Analysts widely predict no change in rates this week.
Capital Economics doubts a November rate cut. But economist Paul Dales expects weaker wage growth to bring UK inflation closer to US and eurozone levels.
He forecast rates will fall from 4% to 3% by late next year.
Small businesses face rising costs
Tom Egan, who runs Coosh Bakery in Nottingham with his wife, said higher butter and chocolate prices are hitting hard.
Poor cocoa harvests more than doubled supplier costs. A 10kg batch once priced at £60 now exceeds £150.
Butter prices jumped 50% in a year as milk imports fell. Reduced supply pushed costs higher.
Egan said higher National Insurance Contributions have also “stung”. His bakery has delayed investment in equipment and technology that could improve productivity.
