Today's Consumer price index inflation figures did not differ from expectations and reflected a marginal drop in pace to 6-8 percent in the year to August - yet another interest rate rise is still expected to go ahead. The Bank of England's economists are being accused of being 'wrong again' and are being urged to rethink their decision. Commenting on ONS data showing a surprise drop in the rate of inflation, Lance Foreman, a former member of the European Parliament, wrote on X: Analysts, and the Bank of England, that inflation should accelerate to a reading of 7.1 percent, mainly due to a surge in fuel costs. This prompted market expectations that the Bank would raise the Base Rate again by at least 0.25 percentage points to 5.5 percent on Thursday.
The Bank of England has been consistently raising the Base Rate since December 2021 to stem soaring inflation and reduce it to a Government target of two percent. Along with the CPI, Core inflation - which strips out volatile data relating to energy and food and is a key metric used by the Bank of England to determine whether to hike interest rates - also reflected a drop in pace. Core inflation rose by 6.2 percent in the 12 months to August 2023, down from 60.9 percent in July. s better than expected UK inflation data show why forecasters and policymakers should pay more attention to monetary aggregates, said Julian Jessop, economics fellow at the Free Market Institute of Economic Affairs.
Even if the MPC decides to hike one more time this week, they should signal that rates are then on hold for a long period - and that the next move is just as likely to be a cut, Mr Jessop said. Suren Thiru, the economics director of chartered accountant group ICAEW, said raising interest rates would be a'misstep' following the surprise inflation drop.
Even though interest rates will probably rise on Thursday, additional tightening unnecessarily risks will aggravating the financial struggles facing households and businesses, given the long-time lag between rate hikes and their impact on the real economy. The FPB agreed on Monday that the decision must mark a peak for UK interest rates. Martin McTague, the national chairman of the FSB, said: ''The Base Rate decision by the Bank of England has to be the peak for rates, one way or another.