UK Inflation Remains Stable at 2.2% in August
The UK's annual inflation rate remained unchanged at 2.2% in August, defying expectations of a slight rise to 2.3%. This stability comes ahead of the Bank of England's interest rate decision on Thursday.
While headline inflation remained steady, core inflation, excluding volatile elements like food and energy, accelerated from 3.3% to 3.6%. This increase exceeded economists' expectations of 3.5%.
The Office for National Statistics (ONS) highlighted rising airfares as the primary driver of inflation in August, jumping by 11.9% year-on-year. Meanwhile, a decline in fuel prices by 3.4% helped keep overall inflation steady. Prices in restaurants and hotels rose at the lowest rate in three years, increasing by 4.4%.
The figures come ahead of the Bank of England's Monetary Policy Committee (MPC) meeting on Thursday. Policymakers are expected to maintain the base interest rate at 5%. The Bank, which targets an inflation rate of 2%, made its first interest rate cut in four years this summer and is expected to make gradual cuts moving forward. Markets anticipate one more reduction in 2024, bringing the base rate down to 4.75%.
While overall inflation has stabilized, the rise in core and services inflation could concern more hawkish members of the MPC. Goods prices, on the other hand, fell by 0.9% over the year, remaining in deflationary territory.
Economists predict that rising energy prices from October will contribute to further inflationary pressures throughout the year. However, wage growth, a previous driver of inflation, has started to ease.
The government acknowledged the ongoing strain on households despite the leveling off of inflation. They remain determined to fix the foundations of the economy to improve the lives of people across the country.
In response to the figures, economists suggested that the uptick in services inflation could rule out an interest rate cut in September. They expect the MPC to keep rates steady for now.