UK shop prices rose by 0.9% year-on-year in August 2025, marking the fastest increase since March 2024. Food prices were the main driver, climbing 4.2%, the highest rate since February 2024, led by staples like eggs, butter, and chocolate. Supply constraints due to weather issues, global shortages, and rising labour and operational costs are pushing prices higher. Additionally, the end of promotional discounts and around £7 billion in extra costs from government tax and wage policies are further straining retailers.
These rising costs are squeezing household budgets already burdened by high energy bills and stagnant incomes. The persistent inflationary pressures complicate the Bank of England’s efforts to ease monetary policy, as hopes for rate cuts fade amid concerns that inflation will remain elevated. This backdrop suggests the BoE will likely stay cautious on interest rates, which in turn supports the pound but raises risks of slower economic growth.