Food prices rose sharply in August, the fifth monthly increase in a row. It was the fastest rise since early last year.

The cost of food and non-alcoholic drinks climbed 5.1% over the year. Beef, butter, milk and chocolate were among the biggest drivers.

Other prices, including air fares, rose more slowly. That kept overall UK inflation steady at 3.8%, unchanged from July.

Economists said supermarkets are passing higher minimum wage and National Insurance costs directly to consumers.

Bank of England faces difficult choices

Inflation remains above the Bank of England’s 2% target. Analysts expect rates to stay on hold this week.

Chancellor Rachel Reeves admitted families are under strain. She promised to bring down costs and support people struggling with rising bills.

Her first Budget raised the minimum wage and employer National Insurance Contributions. Businesses warned those measures would lift prices further.

Reeves pledged no new borrowing or fresh taxes, but speculation about November’s Budget is building.

Shadow chancellor Sir Mel Stride called the figures “deeply worrying” and said Labour’s policies are fuelling inflation.

Britain diverges from Europe

The Office for National Statistics reported the strongest rise in food and drink prices in 19 months.

It said UK inflation remains far higher than in major European economies. France recorded 0.8% in August, while Germany posted 2.1%.

Yael Selfin, chief economist at KPMG, said Britain had become an “outlier” compared with its peers.

She said higher employer National Insurance Contributions pushed up business costs that were then passed onto households.

Essentials see sharp increases

Beef and veal prices jumped nearly 25% in the year to August. Butter rose almost 19%, and chocolate climbed 15.4%.

The British Retail Consortium warned food inflation is outpacing wages, which grew 4.7% between May and July.

Director Kris Hamer said families are struggling as pay fails to keep up. Clothing and footwear prices fell as retailers discounted summer stock.

Cereals and pasta also saw slight price drops during the month.

Interest rate outlook remains uncertain

ING economist James Smith said inflation stuck at 3.8% complicates the Bank of England’s decisions.

He warned food inflation could rise again before year-end. The Bank has already cut rates five times since August last year, bringing borrowing costs to 4%.

Officials expect inflation to peak at 4% in September. Analysts widely predict no rate change this week.

Capital Economics doubts a November cut is likely. But economist Paul Dales expects weaker wage growth to bring inflation closer to US and eurozone levels.

He forecast rates will fall from 4% to 3% by late next year.

Small businesses under pressure

Tom Egan, who runs Coosh Bakery in Nottingham with his wife, said higher butter and chocolate prices are hitting hard.

Poor cocoa harvests more than doubled supplier prices. A 10kg batch once priced at £60 now costs over £150.

Butter prices jumped 50% in a year as milk imports fell. Reduced supply has pushed costs higher.

Egan said higher National Insurance Contributions have also hurt. His bakery has delayed investing in new equipment and technology that could boost productivity.