UK inflation remained at 2.2% in August, providing some respite for consumers. Meanwhile, core inflation, which excludes volatile elements like food and energy, rose to 3.6%. The Bank of England faces pressure as it prepares to announce its next interest rate decision.
Despite the overall stability in consumer prices, core inflation has seen an unexpected rise. According to the Office for National Statistics (ONS), core inflation accelerated from 3.3% to 3.6%, surpassing economists’ forecasts of 3.5%.
In contrast, a drop in fuel prices by 3.4% helped maintain the overall inflation rate at 2.2%. Lower fuel costs offered some relief amidst the rising prices of other goods.
The service sector has seen an increase in prices from 5.2% to 5.6%, which could pose concerns for more hawkish members of the Monetary Policy Committee (MPC). The rising cost of services may lead to more stringent policy measures.
Markets are anticipating another rate reduction in 2024, potentially bringing the base rate down to 4.75%. However, the recent rise in core inflation might delay any immediate monetary easing.
Similarly, Yael Selfin from KPMG argued that the uptick in services inflation likely removes the possibility of an interest rate cut, reinforcing market expectations that rates will remain steady.
Rising energy prices expected from October could add to the inflationary pressures, despite the recent easing of wage growth. The intersection of these factors complicates the economic outlook for the year ahead.
The combination of rising energy costs and moderated wage growth will be crucial in shaping the inflation dynamics of the coming months. These elements will play a significant role in the Bank of England’s future policy decisions.
The economic landscape in the UK remains complex, with stabilised overall inflation contrasted by rising core inflation. The Bank of England faces a challenging path ahead as it navigates these variables. Households continue to feel the strain, emphasising the need for robust economic policies moving forward.
While the immediate outlook remains uncertain, market experts and officials alike agree that close monitoring will be essential. The Bank of England’s upcoming decisions will be pivotal in steering the economy through these challenging times.
