Britain's inflation may hit 4%, highest among rich nations

Britain's inflation rate looks set to hit four per cent in September in data due for release on Wednesday, the highest among the world’s big rich economies and double the Bank of England's target.

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The fast pace of price growth — while a lot lower than a peak of 11.1 per cent in 2022 following Russia's invasion of Ukraine — puts a strain on households and means borrowing costs are likely to stay higher than in other countries, at least in the short term.

It also adds to the challenge for finance minister Rachel Reeves who has promised voters that she will ease cost-of-living pressures and speed economic growth but is likely to raise taxes in her budget next month, potentially adding to inflation.

Below is an explanation of Britain’s price growth problem.

Why is UK inflation so high?

Britain's inflation rate was 3.8 per cent in August, much higher than the euro zone's 2.0 per cent.

A driver of British prices has been fast wage growth due in part to a worker shortage since the Covid-19 pandemic and increases to the minimum wage and employer taxes.