Inflation rises to 3.1 per cent in August

UK inflation climbed to 3.1 per cent in August following a 12p-a-litre jump at the pumps, the Resolution Foundation said on 18 September 2026¹. The think tank said the worst is still ahead, pointing to Bank of England forecasts of 4 per cent inflation this winter and an energy price cap tipped to rise by a quarter in January¹.

The Bank of England held bank rate at 3.75 per cent and changed the way it unwinds quantitative easing, which the Resolution Foundation said took some heat off the cost of government borrowing, with gilt yields dropping roughly 10bps on announcement, worth about £900 million¹.

On pay, the Resolution Foundation said real regular pay growth was hovering at 0.6 per cent and was set to weaken as inflation climbs, while unemployment has held at 4.9 per cent for most of the year even as payrolled employees and vacancies drift downwards¹. Private sector pay growth, using the single month average of weekly earnings, fell to 2.8 per cent in July, and for these workers typical weekly pay is worth £2 less than last October¹. Public sector pay growth was 6.0 per cent, which the think tank said partly reflects NHS pay settlements landing earlier this year than last¹.

Wage data also put the state pension up 3.9 per cent in April¹. The Resolution Foundation said the biggest unfunded policy bequeathed by Rachel Reeves was a £1.8bn teachers' pay settlement, now set for a £500m top up¹.

Why it matters for households

Higher inflation figures mean prices are rising faster than they were, and the Resolution Foundation said the squeeze will continue with prices up, bills rising and pay soon to fall¹. For private sector workers, real regular pay growth of 0.6 per cent is set to weaken as inflation climbs, and typical weekly pay is already worth £2 less than last October¹. Public sector workers and pensioners have seen stronger increases, with public sector pay growth at 6.0 per cent and the state pension up 3.9 per cent in April¹. The energy price cap is tipped to rise by a quarter in January, which would affect household bills from that point¹. The CPI and CPIH measures are the headline gauges of these price changes.

What happens next

The Bank of England forecasts inflation of 4 per cent this winter¹. The energy price cap is tipped to rise by a quarter in January¹. The Resolution Foundation said strong public sector wage growth presents a challenge for the Spending Review next year, and set out the trade-off between pay restraint, funding through the existing spending envelope, or more taxation¹.