The UK's annual inflation rate accelerated to 3.1% in August, intensifying cost pressures on households and businesses while keeping the prospect of a Bank of England rate hike this year firmly on the table.

Data released by the Office for National Statistics on Wednesday showed the figure rising from July's 2.9% level, matching the expectations of economists surveyed by Reuters. The statistical agency attributed the August uptick primarily to higher petrol prices, with household energy bills also contributing to the increase.

The latest reading pushes inflation further away from the Bank of England's 2% target, setting the stage for the Monetary Policy Committee's benchmark rate decision due on Thursday. While most economists expect the central bank to hold rates steady at 3.75%, the fresh inflation data is likely to increase the odds of a rate hike as early as November.

Despite the energy shock stemming from the Iran conflict, the MPC has held off on tightening, with officials awaiting further evidence on whether elevated inflation has become entrenched in the economy. At its previous meeting in July, the committee voted 6-3 to keep rates unchanged, underscoring deep divisions over how to respond to surging oil and gas prices.

Yael Selfin, chief economist at KPMG, suggested that rising energy costs could test the Bank's "wait-and-see approach" on interest rates. "The MPC will be wary that prolonged above-target inflation could feed into significant wage adjustments and corporate pricing behaviour," she said. "There is currently little sign that this is happening. However, if the inflation outlook does not improve markedly, the balance of risks may tilt towards a rate increase before year-end."

Global energy costs have soared since June, prompting the European Central Bank to raise rates twice and leading traders to bet on a Federal Reserve rate hike on Wednesday evening, which would mark the first such move since 2023.

The rapid surge in oil prices presents a significant political challenge for Prime Minister Andy Burnham, whose Labour MPs secured his path to Downing Street on promises to ease cost-of-living pressures for voters. However, the sharp rise in government bond yields has reportedly shrunk the government's fiscal buffer by more than half, limiting the scope for delivering voter-friendly policies.

Chancellor John Healey, responding to the August inflation data, stated: "The war in the Middle East is affecting global inflation, and the UK has not been spared - visible in bills, everyday purchases, and petrol prices. We have taken early action to support households and give businesses room to breathe."

Services inflation, a key gauge of domestic price pressures closely watched by policymakers, held steady at 3.4% in August, while core inflation, excluding energy and food, remained stable at 2.6%.

The pound edged lower following the data release, trading flat against the US dollar at 1.348 on the day. Official figures released on Tuesday indicated continued softening in the labour market with subdued wage growth, which economists say reduces the necessity for the MPC to embark on an aggressive rate-hiking cycle.

Francesco Pesole, strategist at ING, noted: "There is still no evidence that inflation pressures have spread beyond the energy sector, which will provide support for the Bank's dovish members at tomorrow's meeting."