INFLATION rose to 3.1% in August, driven by higher fuel prices – but what does it mean for savers and borrowers?
The Consumer Prices Index (CPI) rose by 3.1% in the 12 months to August 2026, up from 2.9% the previous month, the Office for National Statistics (ONS) has said today.
Transport, particularly motor fuels, made the largest upward contribution to the monthly change.
But core CPI (CPI excluding energy, food, alcohol, and tobacco) was unchanged at 2.6% in the 12 months to August 2026, while services inflation held at 3.4%.
Experts said higher fuel costs have increased pressure on household finances and complicated the outlook for mortgage rates.
This puts more pressure on the Bank of England ahead of its base rate decision tomorrow.
Although the fuel-driven increase may not be sufficient to trigger an immediate rate rise, it could strengthen the case for keeping base rate unchanged and delaying any cuts.
For borrowers, that means fixed mortgage rates may not fall as quickly as previously hoped, while higher living costs could also reduce the amount some households can borrow.
Savers may benefit if interest rates remain elevated, but they must still check whether the returns on their accounts are keeping pace with inflation.
Rise
Emma Jones, Managing Director of Runcorn-based WhenTheBankSaysNo.co.uk, urged borrowers to secure a mortgage deal early.
She added: “This increase is largely being driven by fuel prices rather than broader inflation, but mortgage borrowers will still feel the consequences. Higher inflation reduces the prospect of a Bank of England base rate cut and keeps pressure on swap rates, which influence fixed mortgage pricing.
“Anyone buying or remortgaging soon should secure a deal early, as lenders can withdraw their cheapest products with little notice.”
Rohit Kohli, Director at Romsey-based The Mortgage Stop, said mortgage rates are already going up.
He added: “No surprise here. Fuel and energy costs are up and it’s feeding straight into prices. The only positive is that core and services inflation haven’t moved. That tells me this is largely an oil and energy problem rather than prices running away across the board, and it gives the Bank of England a strong argument to hold tomorrow.
“But a hold doesn’t mean cheaper mortgages. Lenders have already moved, with rates going up over the last couple of weeks as oil spiked again. A Bank of England decision alone probably won’t spark another round, but it’s a clear sign that rate reductions aren’t coming soon.
“So anyone holding out for cheaper mortgage rates could be waiting a while. If your deal ends soon or you’re looking to buy, get advice now.”
Benefit
Ranald Mitchell, Director at Norwich-based bad credit mortgage specialists Charwin Mortgages, said borrowing power is reduced if inflation goes up.
He added: “This is not just an interest rate story. Higher inflation also bites directly into mortgage affordability. As household costs such as fuel, food, utilities and insurance rise, lenders’ affordability models have to allow for more everyday expenditure, leaving less income available to support a mortgage.
“That can reduce borrowing power even if mortgage rates themselves do not move significantly. For some buyers, the amount they can borrow may fall at exactly the same time as their monthly living costs are increasing.
“We have also already seen mortgage lenders repricing upwards this week, so borrowers face a potential double squeeze, higher mortgage rates and tighter affordability. Savers may benefit from rates staying higher for longer, but they still need to ensure their returns are keeping pace with inflation.”
Chris Barry, Director at London-based Thomas Legal, said the Bank of England may be forced to raise its base rate.
He added: “Inflation rises this time round aren’t going to move the dial immediately but what’s coming down the track could certainly be cause for concern. Wage inflation is increasing and as a result, the state pension will outstrip inflation again thanks to the triple lock.
“This will snowball into an overall higher inflation figure through more people having more money which will almost certainly prompt the Bank of England to take action by increasing interest rates to take money out of the system from working people.”
Nuanced
Jamie Alexander, Mortgage Director at Romsey-based Alexander Southwell Mortgages, said savers need to check if they are getting a decent return.
He added: “Inflation ticking up to 3.1% is not a disaster but it is the wrong direction, and the timing matters. The Bank of England has been carefully managing expectations around rate cuts, and a number like this makes the next move harder to call. Markets will be pricing in a longer hold, possibly into next year.
“For borrowers that means fixed rates are unlikely to fall as quickly as people were hoping a few months ago. Anyone sitting on a tracker or variable rate will be watching the next Monetary Policy Committee decision closely. If you are coming off a fixed rate in the next six months, do not wait for a better number before acting.
“For savers it is a more nuanced picture. Rates on savings accounts have softened as markets anticipated cuts, but with inflation back above 3% the real return on cash is being squeezed again. It is worth checking whether your savings rate is actually keeping pace.”
David Belle, Founder and Trader at Fink Money, said the UK is struggling compared with other countries.
He added: “Like Jose Mourinho, the UK is the Special One in this scenario because of how fragile successive governments have made the economy. The biggest identifier of this is how gilt yields trade at a premium to other G7 debt, despite these nations also having the same global shock factors.
“The UK is an anti-productivity quagmire – industrial energy costs 80% higher than France, huge costs added to businesses via the government and no real way of understanding how to boost growth. The effect on the housing market is about to be pretty detrimental.”
Tony Sanchez, Founder at Bridging Loan Directory, said rate cuts are now unlikely.
He added: “Borrowers should not assume that CPI at 3.1% means mortgage rates will automatically rise tomorrow. Existing fixed-rate mortgages will not change, tracker and variable rates depend more directly on the Bank of England base rate, while new fixed-rate pricing is heavily influenced by swap rates and lenders’ funding costs.
“The inflation increase does, however, make rapid rate cuts less likely. Anyone refinancing soon should not base their plans on a dramatic fall in mortgage rates. Savers may benefit if banks keep rates higher, but inflation reduces the real return and tax can reduce it further, making it important to compare accounts and use available ISA allowances.
“For property investors, higher-for-longer rates can also reduce the loan supported by rental income and make refinancing out of bridging finance harder. Relatively small rate changes can create equity shortfalls or lead to costly extensions, so exit assumptions need reviewing early.”
