Inflation stays on hold at 3.8%

Inflation held steady at 3.8% last month.

August's figure means it remains at the highest level since January last year and is almost double the Bank of England’s (BoE) target of 2%.

High inflation is being driven partly by rising food prices.

According to the Office for National Statistics (ONS), food inflation hit 5.1% in the year to August.

That’s the fifth month in a row in which this figure has gone up.

Responding to the figures, chancellor Rachel Reeves said: "I know families are finding it tough and that for many the economy feels stuck.

"That’s why I’m determined to bring costs down and support people who are facing higher bills."

She added that the government is taking action to "put more money in people's pockets", such as raising the national living wage, extending the £3 bus fare cap and expanding free school meals.

What is inflation?

Inflation is a measure of how fast prices are going up.

If inflation is high, your money doesn’t go as far, and budgeting and saving can be harder.

But remember that if inflation falls, it doesn’t mean prices are coming down too.

It just means they aren’t going up as fast.

How is inflation linked to interest rates?

If inflation is too high or unstable, it’s harder for people to plan their spending and for businesses to set the right prices.

And if it’s too low or negative, people might delay spending because they think prices will fall.

If the BoE wants to bring down inflation or encourage spending, it can change interest rates, which, in turn, affects the interest rates offered by banks and lenders.

Putting interest rates up can make borrowing more expensive and people will have less money to spend elsewhere.

That can lead to a fall in demand, slowing price increases and helping inflation go down.

And if inflation is too low, the BoE may cut interest rates to make borrowing cheaper, encourage spending and drive economic growth.

What are interest rates at the moment?

Last month, the BoE cut interest rates by a quarter of a percentage point to 4%.

This was the fifth rate reduction since August last year and the lowest they've been for over two years.

But with inflation remaining high, some economists believe further rate cuts before the end of the year are unlikely.

The BoE’s next interest rate decision is due to be made tomorrow.

How is inflation measured?

Imagine a shopping basket full of everyday items like bread and milk, along with bigger purchases like cars and televisions.

The ONS tracks the price of what’s in that basket every month - and the headline inflation figure shows how much it’s changed.

How to manage rising costs

If you’re feeling the pinch as prices continue to go up, there are steps you can take.

Check your benefits

You might be entitled to financial support from the government, so see what help you could get with our benefits calculator.

Look at your spending

Make sure you’re on top of how much money you have coming in and where it’s going, so you can prioritise your spending and work out where savings can be made.

Get started by checking out our guide to how to create a budget, so you can clearly see how much money you’re earning and where it’s going.

And give our budget planner a try - it’s free and easy to use.

Tackle problem debts

If you’ve fallen into debt because of cost-of-living pressures, then get in touch for confidential, practical and impartial debt advice.