UK inflation remained stable at 2.2% for August, according to data released by the Office for National Statistics on Wednesday. This figure matches the inflation rate recorded in July and aligns with market expectations. The inflation rate had been at 2% in May and June, consistent with the Bank of England’s target.
Services inflation, which is closely monitored by the Bank of England due to its significant role in the UK economy, rose to 5.6% in August from 5.2% in July. Core inflation, which excludes energy, food, alcohol, and tobacco, increased to 3.6% from 3.3% the previous month.
The increase in inflation was primarily driven by higher airfares, which have risen from a lower base last year. Conversely, motor fuel, hotels, and restaurants saw the largest declines in prices.
The Bank of England's policymakers are scheduled to meet on Thursday to decide on monetary policy. Traders are largely anticipating that the bank will maintain current interest rates. However, expectations for a potential rate cut have intensified following indications of a more aggressive stance from the U.S. Federal Reserve.
Overall, the data suggests that the Bank of England will likely pause any interest rate cuts in its upcoming meeting. The next potential rate cut is anticipated in November, with subsequent cuts expected at alternating meetings until June.
The inflation report comes ahead of the UK’s Autumn Statement on October 30, where the new Labour government will outline its budget plans.
