Hopes of a Bank of England interest rate cut tomorrow were dealt a blow today as inflation held steady.
Headline CPI came in at 2.2 per cent in August – unchanged from the previous month. Core inflation notably nudged up slightly.
The figures pour more cold water on the prospects of another move to ease the pressure on struggling Brits, after last month’s drop to 5 per cent from 5.25 per cent.
Core inflation rose by 3.6 per cent in the 12 months to August, up from 3.3 per cent the previous month.
Markets have been pricing in a one in five change of the Monetary Policy Committee cutting tomorrow lunchtime, with CPI still above its 2 per cent target.
Bank of England governor Andrew Bailey will announce the latest interest rates decision tomorrow at noon
ONS Chief Economist Grant Fitzner said: ‘Inflation held steady in August as various price fluctuations offset each other.
‘The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year.
‘This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month, but rose at the same time last year.
‘Following two months of growth, raw material prices fell, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed again.’
Suren Thiru, Economics Director at ICAEW, said inflation was in a ‘difficult phase’ as stronger services sector price pressure bites.
‘The direction for UK inflation over the rest of this year looks largely locked in, with the boost to demand from a growing economy and higher energy bills in October likely to put inflation on a modest upward trajectory,’ he said.
‘While the increase in services inflation confirms that it remains a key barrier to keeping the headline rate consistently at or below target, the growing squeeze on wages should help put it on a firmer downward path.
‘An interest rate cut on Thursday is looking unlikely with the majority of the Monetary Policy Committee likely to want to assess the impact of next month’s budget before deciding when to loosen policy again.’
Capital Economics said: ‘Overall, a pause on interest rate cuts was already expected tomorrow and today’s release cements that view.
;We continue to assume the next 25 basis point rate interest rate cut will take place in November and that rates will be cut at alternative BoE meetings until June.’
Darren Jones, Chief Secretary to the Treasury, said: ‘Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago.
CPI inflation is now roughly in line with big EU economies and the US
Headline CPI came in at 2.2 per cent in August – unchanged from the previous month
‘So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling, which is why we are determined to fix the foundations of our economy so we can rebuild Britain and make every part of the country better-off.’
But shadow chancellor Jeremy Hunt said: ‘Labour inherited inflation at the Bank of England’s target and today’s figures show they must do the hard work to keep inflation down, as we did in Government.
‘That includes rejecting potentially damaging new employment rights which will put up the cost of labour and ultimately raise prices as a result.’
