The United Kingdom is still grappling with the effects of high inflation, characterized by long-lasting inflation that has been volatile since the beginning of 2021. At the start of 2021 the inflation rate was just 0.1% as measured by the Consumer Prices Index (CPI). By October 2022, it had soared to a shocking 11.1%. This is the largest inflation increase seen in four decades. That was exacerbated by increasing demand for oil and gas post-Covid, as well as surging energy prices after Russia invaded Ukraine.
The years that followed revealed that UK inflation was not only above target but risked becoming highly unstable. As of June 2025, it had dropped to a much more manageable 2%, a sign that the economy is slowly recovering. This stabilization was not to last, and under the inflation of the past year as measured up through September 2025, inflation stood at 3.8%. This hours rate equaled the all-time highs recorded in July and August of 2021. It emphasizes the challenge that will remain in the fight to achieve price stability.
Food and non-alcoholic beverage prices were consistently the largest contributors to overall inflation. This sector does the math. Creative and cultural industries had a 4.5% surge in the 12 months prior to September. Given that these hikes are still forcing unaffordable pressures on every home throughout the UK. This situation highlights just how important it is for the Bank of England to get inflation right.
The Bank of England has made strong moves against inflationary pressures. To try to rein in sky-high prices, the Fed’s Federal Open Market Committee increased interest rates to 5.25%, a 16-year high. This decision was an attempt to tighten monetary policy in order to tame inflation, which has been stubbornly high above the Bank’s target of 2%. As Governor Andrew Bailey remarked, policymakers recognize that the situation is complex:
“We are not out of the woods yet.” – Andrew Bailey
The path of UK inflation has been anything but straight. The rate reached record-highs of 11.1% at the end of 2022. It subsequently fell to a low of 1.7% in September 2024 before increasing again. The core CPI over the 12 months ending in September 2025 was 3.5%. This is a drop from the 3.6% reported in August, as it removes volatile products such as food and energy.
Even with these ups and downs, the Bank of England is still experiencing difficulties in hitting its inflation targets. This is partly because the inflation clock has continued to tick, suggesting that additional tightening of monetary policy will be required. As Bailey noted, any changes to interest rates:
“Will need to be made gradually and carefully.” – Andrew Bailey
Inflation trends internationally point to a more global economic picture that’s hurting the UK. By August of 2025, inflation in the United States reached an annualized rate of 2.9%. This was up from 2.7% last July and above the US central bank’s target of 2%. This global trend is a new complication for UK economic policymakers.
Moreover, historical comparisons offer an important context for how bad things are today. This means that in mid-2015, UK real wages were increasing at 2.6%. This increase is a refreshing world away from today’s inflationary pressures that have already lowered purchasing power for many households. The economic environment is still shaky, and widespread pessimism among managers persists, as data are watched like hawks for either stabilization or more earthquake.
Like the rest of us, policymakers are sailing in uncharted waters. How well they’re able to adapt will be key to addressing new and needed short- and long-term economic priorities. Inflationary pressures and interest rate hikes will continue to be a dominant theme in chatter among economists and financial whizzes. Look for spirited discussions on each of these issues in the months to come.