Consumer prices are rising by nearly twice the Bank of England’s target rate, having gone up faster than expected in 2025. This marks a change from the declining rates of inflation seen during most of 2024.
In this month’s economic update, we take a closer look at recent trends in UK inflation and explain how food prices and administered prices have pushed up inflation.
Recent changes in inflation
The inflation rate – the annual percentage change in consumer prices – was historically high between 2021 and 2023, a 41-year high. By September 2024, it had fallen to 1.7%.
Inflation subsequently started rising again, as the left-hand panel in the chart below shows. In August 2025, inflation was 3.8%, the same as in July 2025, which was the highest since January 2024.
The cumulative effect of inflation on the overall price level has been substantial. One way to gauge this is to compare the price level in August 2025 (the most recent data we have) with five years before in August 2020, as the right-hand panel in the chart below shows. Over this five-year period, UK consumer prices rose by 28.2%. For context, in the previous five-year period from August 2015 to August 2020, prices rose by a total of 8.3%.
The Bank of England’s inflation target
The government sets the Bank of England an inflation rate target of 2%. The government expects the Bank of England to meet the 2% target in the “medium term”, which is usually taken to mean within a few years.
The government gives the inflation rate target to the Bank of England’s Monetary Policy Committee (MPC) when the Chancellor sets the MPC’s remit every year. Since 1997, the MPC has had operational independence from government; this allows the MPC to set the UK’s base interest rate (without the involvement of the government) to meet the government’s 2% inflation target.
If inflation deviates by more than 1 percentage point from the 2% target, the Governor of the Bank of England must write an open letter to the Chancellor explaining the reason for the deviation and the Bank’s plan to return inflation to the 2% target.
Why has inflation picked up again in 2025?
In a letter to the Chancellor on 18 September 2025, the Bank of England Governor, Andrew Bailey, explained that inflation was well above the 2% target mostly due to increases in food prices and “administered prices” (prices that are directly set or influenced by decisions from government or regulators). The governor cited increases in water bills and Vehicle Excise Duty as examples of administered price rises.
The governor also noted that the increase in employer National Insurance contributions (NICs) and the rise in the National Living Wage, both coming into effect in April 2025, seem to have kept the growth in labour costs higher than it otherwise would have been.
In August 2025, the Decision Maker Panel survey of businesses found that as a result of the employer NICs increase, 66% of firms reported lowering their profit margins, with 34% raising prices and 20% paying lower wages than otherwise (firms could choose more than one option).
Another factor has been the rise in energy bills this year, particularly as they had been falling before that.
Increasing food price inflation
Food and non-alcoholic drink price inflation rose to 5.1% in August 2025, the highest rate since January 2024. This compares with 3.3% in January 2025.
Some food categories have experienced sharper increases, with beef and veal prices in August 2025 up by 24.9% compared with August 2024. Butter is up by 18.9% and chocolate is up by 15.4%.
The rise in food price inflation during 2025 has been higher than expected. This is partly due to global agricultural commodity prices increasing this year. As many foods are traded internationally, their prices are largely determined in regional or international markets.
An index of world food prices compiled by the UN Food and Agriculture Organization shows prices up by around 8% in August 2025 compared with August 2024.
The Bank of England also notes that UK food price inflation has been above Eurozone food price inflation, suggesting a UK-specific factor is also contributing to higher food prices. The Bank cites domestic labour costs, with relatively high pay growth, including the 6.7% rise in the National Living Wage in April.
The Food and Drink Federation, which represents firms in the food manufacturing industry, also points to firms passing on some of their cost increases, saying some cost increases were a result of government regulation and policy decisions like the employer NICs increase.
The chart below shows annual food price inflation since 2020 on the left, and the cumulative effect of inflation on food price levels since 2020 on the right (as we did for overall inflation in the chart above).
UK food prices rose by a total of 37.2% between August 2020 and August 2025. This compares with a 4.6% increase in the five years from August 2015 to August 2020.
Budget date set for 26 November
The government announced that the Budget will be on 26 November 2025. As set out in last month’s economic update, the Chancellor faces pressures to meet her self-imposed fiscal rules for the public finances.
The Commons Library will, as usual, produce a briefing ahead of the Budget, providing background information on the state of the economy and public finances.
“Subdued” GDP growth continuing
The Commons Library’s Budget briefing will also examine possible changes in the Office for Budget Responsibility’s forecasts, which will be published alongside the Budget, including in its GDP growth expectations.
While UK GDP growth in the first half of 2025 was better than many had anticipated, the prevailing annual GDP growth rate of between 1% and 1.5% is often described as “modest” or “subdued”.
There is currently little indication that UK GDP growth rates will noticeably accelerate in the near future. The OECD’s new forecasts, published on 23 September 2025, anticipates UK GDP growth of 1.5% in 2025 and 1.0% in 2026.
About the author: Daniel Harari is a researcher at the House of Commons Library, specialising in the UK and international economies.