2024-09-18 07:22:31
Stay informed with free updates
Simply sign up to the UK inflation myFT Digest — delivered directly to your inbox.
UK inflation held steady at 2.2 per cent in August, leaving the door open for the Bank of England to cut interest rates later this year.
The annual increase in consumer prices, reported by the Office for National Statistics on Wednesday, was unchanged from July’s rate and matched the expectations of economists polled by Reuters.
The figures come as the BoE’s Monetary Policy Committee will announce its latest rate decision on Thursday after cutting the rate by quarter point to 5 per cent in August in the first reduction in more than four years.
Services inflation, the BoE’s key measure of domestic price pressures, rose to 5.6 per cent, marginally above economists’ expectations of 5.5 per cent and up from 5.2 per cent in July.
Economists said persistent price pressures in the services sector mean the MPC will leave rates unchanged this week, but further cuts are expected later this year.
“A pause on interest rate cuts was already expected tomorrow and today’s release cements that view,” said Ruth Gregory at Capital Economics. “We continue to assume the next [quarter] point rate interest rate cut will take place in November.”
Traders scaled back bets on the possibility of the MPC cutting the rate on Thursday to about 25 per cent, from 35 per cent ahead of the release of the inflation figures. Sterling edged higher to 0.13 per cent to $1.3178.
The BoE has been wary of declaring victory prematurely over inflation, which has been slightly above the BoE’s 2 per cent target for two consecutive months.
Services inflation was held up by a sharp increase in airfares, figures from the ONS showed, offset by weakness in fuel prices, as well as charges by restaurants and hotels.
Core inflation, which strips out volatile food and energy prices, was 3.6 per cent in August compared with 3.3 per cent in July.
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. So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling”.
1726646701
#inflation #holds #steady #August
– How does the steady inflation rate of 2.2% affect the Bank of England’s interest rate decisions?
Table of Contents
UK Inflation Holds Steady at 2.2%, Leaving Door Open for Interest Rate Cuts
The latest inflation figures from the Office for National Statistics (ONS) have revealed that UK inflation remained steady at 2.2% in August, matching economists’ expectations and keeping the door open for the Bank of England (BoE) to cut interest rates later this year.
Inflation Rate Remains Unchanged
The annual increase in consumer prices, reported on Wednesday, was unchanged from July’s rate, which was slightly above the BoE’s 2% target. This means that the UK’s inflation rate has remained steady for two consecutive months, leaving policymakers with a difficult decision to make regarding interest rates.
Services Inflation Rises
ervices inflation, which is the BoE’s key measure of domestic price pressures, rose to 5.6% in August, marginally above economists’ expectations of 5.5% and up from 5.2% in July. This increase in services inflation suggests that there are still persistent price pressures in the sector, which could impact the BoE’s decision on interest rates.
Interest Rate Expectations
Economists believe that the BoE’s Monetary Policy Committee (MPC) will leave interest rates unchanged at its meeting on Thursday, but further cuts are expected later this year. According to Ruth Gregory at Capital Economics, “A pause on interest rate cuts was already expected tomorrow and today’s release cements that view… We continue to assume the next quarter point rate interest rate cut will take place in November.”
Market Reaction
Traders scaled back bets on the possibility of the MPC cutting the rate on Thursday to about 25%, from 35% ahead of the release of the inflation figures. Sterling edged higher to 0.13% to $1.3178 following the news.
BoE’s Cautious Approach
The BoE has been wary of declaring victory prematurely over inflation, which has been slightly above the BoE’s 2% target for two consecutive months. The central bank’s cautious approach is understandable, given the potential risks to the economy and the impact of ongoing Brexit uncertainty.
Conclusion
The latest inflation figures have provided a mixed signals for policymakers, with steady inflation rates and rising services inflation. While the BoE is unlikely to cut interest rates in the short term, further cuts are expected later this year. The MPC will need to carefully balance the risks and benefits of monetary policy decisions to support the UK economy in these uncertain times.
Stay Informed
Stay up to date with the latest news and updates on UK inflation and interest rates with our free myFT Digest. Simply sign up to receive direct updates to your inbox.
Keyword optimization:
UK inflation
Bank of England
Interest rates
Monetary Policy Committee
Services inflation
Consumer prices
Brexit uncertainty
Economic growth
Monetary policy decisions
Metadata:
Title: UK Inflation Holds Steady at 2.2%, Leaving Door Open for Interest Rate Cuts
Description: The latest inflation figures from the ONS have revealed that UK inflation remained steady at 2.2% in August, matching economists’ expectations and keeping the door open for the BoE to cut interest rates later this year.
Keywords: UK inflation, Bank of England, interest rates, monetary policy committee, services inflation, consumer prices, Brexit uncertainty, economic growth, monetary policy decisions.
What does steady UK inflation at 2.2% mean for potential interest rate cuts?
UK Inflation Holds Steady at 2.2% in August, Leaving Room for Interest Rate Cuts
The UK’s inflation rate remained unchanged at 2.2% in August, according to the latest data from the Office for National Statistics (ONS). This stable reading has left the door open for the Bank of England (BoE) to consider cutting interest rates later this year.
The ONS reported that the annual increase in consumer prices matched economists’ expectations, following a similar reading in July. While the BoE’s preferred measure of inflation, services inflation, rose to 5.6% in August, marginally above expectations, it was not enough to deter expectations of potential interest rate cuts.
Services Inflation Remains a Concern
The services sector, which includes industries such as hospitality and transportation, continues to drive inflation in the UK. Airfares, in particular, were a significant contributor to the increase in services inflation, offsetting weakness in fuel prices and charges by restaurants and hotels.
Core inflation, which excludes volatile food and energy prices, rose to 3.6% in August, up from 3.3% in July. This suggests that underlying price pressures in the UK economy remain present, although they are not yet threatening to push inflation significantly above the BoE’s 2% target.
Interest Rate Decision Looms
The BoE’s Monetary Policy Committee (MPC) is set to announce its latest interest rate decision on Thursday. While a pause in rate cuts is expected, further reductions are anticipated later this year.
Economists at Capital Economics believe that the next quarter-point rate cut will take place in November, citing persistent price pressures in the services sector. Traders have also scaled back their bets on the possibility of an interest rate cut on Thursday, with the probability now standing at around 25%.
Pound Reacts to Inflation Data
The pound edged higher following the release of the inflation data, rising 0.13% to $1.3178. This suggests that investors are relatively pleased with the stable inflation reading, which has reduced the likelihood of an imminent interest rate cut.
Government Response
Darren Jones, chief secretary to the Treasury, acknowledged that while manageable inflation is welcome, millions of families across Britain are still struggling with high prices. He highlighted that prices remain much higher than they were four years ago, emphasizing the need for continued economic support.
Conclusion
the UK’s inflation rate holding steady at 2.2% in August has left room for the BoE to consider cutting interest rates later this year. While services inflation remains a concern, the overall inflation reading suggests that the BoE has some flexibility to support the economy without worrying about inflation spiraling out of control.
Stay informed with the latest updates on UK inflation and interest rates by signing up for our free newsletter.
Optimized Keywords:
UK inflation
Interest rates
Bank of England
Monetary Policy Committee
Services inflation
Core inflation
Consumer prices
Office for National Statistics
Meta Description:
UK inflation holds steady at 2.2% in August, leaving room for interest rate cuts. Read the latest analysis and stay informed with our free updates.
Header Tags:
H1: UK Inflation Holds Steady at 2.2% in August
H2: Services Inflation Remains a Concern
H2: Interest Rate Decision Looms
H2: Pound Reacts to Inflation Data
H2: Government Response
H2: Conclusion