Inflation in the UK has remained steady at 2.2% for August, according to the latest data from the Office for National Statistics (ONS). This figure is slightly above the Bank of England’s target of 2%. The stability in inflation comes despite a record increase in airfares and a deceleration in restaurant price hikes, which have balanced out each other.
The Bank of England is anticipated to maintain the current interest rate of 5%, with possible reductions expected in November. Although inflation may rise in the latter part of the year due to increased energy costs, the upsurge is not projected to be as significant as the previous two years.
The Consumer Price Index (CPI) inflation held firm in August, marked by the second-largest monthly increase in airfares since records began in 2001. This was counterbalanced by declines in fuel prices and reductions in the cost of dining out and staying at hotels. Notably, services inflation rose to 5.6%, reversing a recent decline.
Grant Fitzner, ONS Chief Economist, commented, “Inflation remained constant in August as fluctuations in various prices neutralized each other. The notable rise in airfares, particularly to European destinations, was offset by falling fuel prices and lower costs for restaurants and hotels. Additionally, the cost of shop-bought alcohol decreased this month compared to the same period last year.”
Anna Leach, Chief Economist at the Institute of Directors, noted, “Today’s inflation figures are in line with expectations and reinforce our forecast of a potential interest rate cut later this year. Although inflation might increase in the coming months due to the anticipated rise in energy prices, overall inflation should stabilize as service and wage growth slow. The UK must focus on achieving higher economic growth through updated fiscal rules, supportive business tax policies, and a strategic industrial approach.”
Paul Nowak, General Secretary of the TUC, argued, “Given the steady inflation and stagnant GDP growth, the Bank of England should consider another rate cut. Households are struggling with prolonged price increases and stagnant wages. A rate cut could provide much-needed economic relief and support the new government’s growth initiatives, which aim to rejuvenate UK industry and improve employment conditions.”
Martin Sartorius, Principal Economist at the CBI, commented, “Inflation figures falling short of the Bank of England’s forecasts for the second consecutive month will be a relief for both households and businesses. However, the Bank’s Monetary Policy Committee is likely to remain cautious about lowering rates too quickly. The anticipated uptick in inflation later this year and persistent domestic price pressures suggest a gradual approach to interest rate adjustments, with no immediate changes expected this month.”
