Surging fuel prices see UK inflation rise to 3.1% in August

Inflation is predicted to remain above the Bank of England’s 2% target for the foreseeable in “wake-up call” for savers.

As forecast, the annual rate of UK inflation rose to 3.1% in August, up from 2.9% in July, the Office for National Statistics (ONS) revealed today (16 September). Escalating tensions between the US and Iran, and the resulting uptick in oil prices, have again played a significant role in this latest rise in inflation.

How does inflation impact your cash?

Inflation measures how the price of goods and services increases over time. The main metric used to assess this is called the Consumer Price Index (CPI), which tells us how quickly these prices have risen or fallen over 12 months. When inflation (and prices) rise, your cash can buy less than it did before, which is why it’s important to regularly review where your savings are held to ensure their value is still growing in real terms.

What’s more, in a blow for many households, inflation is widely predicted to rise further and remain above the Bank of England’s 2% target for the foreseeable future. Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, warned that “if inflation reaches 3.2%, as currently projected in Q4 of 2026, someone with £10,000 in cash would need to earn around £320 in interest over the year just to keep pace with rising prices”.

Motor fuel and energy prices soar

It will be no surprise that the largest upward contribution to the rise in August’s inflation figures came from transport, particularly motor fuels. The average price of petrol rose by a steep 9.1 pence per litre between July and August 2026, in comparison to a much smaller rise of 0.3 pence over the same period in 2025. The average price stood at 161.3 pence per litre last month, its highest price since November 2022. Elsewhere, diesel rose by an even more substantial 14.2 pence per litre in August this year, with average prices reaching 181.8 pence per litre.

As a result, combined motor fuel prices rose by a staggering 23% in the 12 months to August, compared with an annual increase of 15.5% in July.

In a further hit to consumers, the energy regulator Ofgem has confirmed the energy price cap will increase by another 4% from October. With households due to come under prolonged, and increased financial strain, many people will be looking for ways to make their money stretch further.

A “wake-up call” for savers

Around one in four savings accounts are falling short of inflation, according to latest analysis by Moneyfactscompare.co.uk. This means many people’s money could be at risk of losing value in real terms, hitting “those who have left their savings in the same account for years without checking the rate” the hardest, Eastell commented. As CPI is set to remain above target as we continue through the year, savers are being urged to shop around to minimise the chances of their returns being eroded by inflation.

However, savers “aren’t powerless” against the pressures of inflation, as, at the time latest inflation figures were released, 1,815 savings accounts offered a real return, Eastell explained. Top savings accounts currently offer upwards of 5.00% AER, but even a small change can make all the difference, especially over time.

For example, savers locking a deposit of £10,000 into a five-year fixed rate of 2% could get £1,040 in interest, meanwhile, with the leading five-year bond currently offering 5.20% AER, they could take home around £2,884. This shows how neglecting to shop the top rates could see savers miss out on almost £1,900. Savers willing to lock into a fix will find there are 417 fixed ISAs and 885 fixed bonds offering inflation-busting returns. Meanwhile, those searching for an account that allows frequent access to their cash have 193 easy access accounts and 159 variable rate ISAs that beat inflation to choose from.

“As inflation continues to put pressure on households”, Eastell reiterated that actively shopping the market “is one of the best ways savers can protect the value of their cash”.

What do today’s figures mean for base rate?

Today’s inflation data will inform the Bank of England’s base rate decision tomorrow (Thursday 17 September). While a base rate rise remains unlikely this month, a hike is expected later this year as pressures mount.

Although a base rate hike could prompt banks and building societies to raise the rates on their savings products, savers will need to remain proactive in reviewing and switching their accounts to make sure their pots aren’t losing purchasing power.