Reflecting these economic conditions, the inflation rate in the United Kingdom reached 3.8% for the year ending September 2025. Inflation this August currently makes that number 6.7%, soaring well above the Bank of England’s target of 2%. Both consumers and policymakers are rightfully concerned about ongoing high inflation. That fear only increased once inflation peaked at 11.1% in October 2022, a four-decade high. The Consumer Prices Index (CPI) is the government’s main measure of inflation. It follows the prices of thousands of normal, walk-in-the-store, first-name-basis items.
The effect of the recent inflationary crisis on the UK economy is markedly different from other advanced economies. In September, euro countries were facing annual inflation of 2.2%. Back here in the states, inflation rose to 3%, up from 2.9% for the month of August. These numbers show the impact of the unprecedented crisis the UK is experiencing. The country is still reeling from acute economic shocks, both homegrown and imported.
The Office for National Statistics (ONS) is a key institution tasked with monitoring inflation. It provides a realistic picture of price increases by tracking prices for hundreds of everyday items, including essential goods like food and fuel. Recent data indicates that the inflation rate for food and non-alcoholic beverages has reached 4.5% for the year ending September. This sharp rise in food prices has only fed into the national inflationary rate, adding farther pressure on rising household costs.
Unimpressively, that meant inflation in the UK has risen and fallen dramatically throughout history. In January 2020, the rate was a mere 1.8%. It subsequently jumped up sharply when demand for oil and gas spiked due to the Covid pandemic. Additionally, energy prices skyrocketed once more after the start of Russia’s war on Ukraine, increasing inflationary pressures across the board.
Judging by communications thus far, the Bank of England has been very self-aware and aggressive in curbing inflation’s rapid incline. Faced with the worst inflation in decades, the Federal Reserve responded aggressively with a dramatic increase in interest rates, now up to 5.25%. That’s the highest share in 16 years. Since August 2024, the Bank has implemented five rate cuts, reducing rates to 4% as part of its strategy to stabilize the economy and encourage growth.
Core inflation, another critical measure considered by the Bank of England, excludes volatile items such as food and energy prices. This measure helps shed light on the direction of underlying inflation trends that will likely affect monetary policy decisions. The Bank’s strategy for interest rate management is a direct reflection of its dual mandate to ensure stable prices and facilitate sustainable economic growth.
The European Union’s European Central Bank (ECB) has pursued an entirely opposite course in recent months. In June 2024, the European Central Bank (ECB) lowered its key interest rate from a record high of 4% to 3.75%. These changes to monetary policy in more than one part of the world are a reflection of different responses to the same global economic challenge.