The Consumer Prices Index (CPI) measure of inflation remained at 2.2% in the 12 months to August, with all eyes poised on the Bank of England (BoE) ahead of its base rate decision tomorrow.
Inflation rose by 2.2% in the year to August, unchanged from July, and it is also below the BoE’s forecast of 2.4%.
According to the Office for National Statistics (ONS), upward pressure came from transport which rose 1.2% in the year to August, compared with 0.1% in the year to July. This is the largest annual price rise since May 2023, with air fares and secondhand cars pushing the figure upwards.
The ONS noted: “Air fares rose by 22.2% between July and August 2024. Fares usually rise between these months, but this was the second largest such rise since the monthly collection of prices began in 2001. The increase came principally from European routes.”
However, CPI was offset by restaurants, hotels, alcohol and tobacco, as prices rose by less than a year ago.
But, core CPI which strips out the more volatile energy, food, alcohol and tobacco, rose by 3.6% in the 12 months to August 2024, while CPI services annual rate rose from 5.2% to 5.6%.
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Bank of England base rate speculation
Danni Hewson, AJ Bell head of financial analysis, said: “Surging demand for a couple of weeks in the sun enabled airlines to lift their fares this summer. Since the pandemic people have prioritised making memories with family over other expenses and even though prices have jumped, savvy consumers have found ways to fund their holidays with many plumping for all-inclusive deals that have helped them budget.
“The uptick in airfares has offset falling inflation elsewhere this summer, holding the UK CPI number at 2.2%, a smidgeon over the Bank of England’s target but one which is likely to result in some caution amongst central bankers later this week.”
Hetal Mehta, head of economic research at St. James’s Place, added: “The UK inflation numbers were very much in line with market expectations, with headline inflation steady and core inflation picking up. This should reinforce the Bank of England’s decision to go gradually with its interest rate cuts. At tomorrow’s meeting the focus will be on decisions regarding its balance sheet especially as the gilt sales have a bearing on the fiscal wriggle room the Chancellor will have at the upcoming Budget.”
Meanwhile, Daniel Casali, chief investment strategist at wealth manager Evelyn Partners, said: “Although the core measure surprised on the upside in August, the broad downward trend in lower UK CPI inflation is intact, allowing the Bank of England (BoE) to cut interest rates over the coming months.
“However, given that services CPI inflation remains elevated at 5.6% year-over-year and economic growth has picked up in the first half of 2024, the BoE will probably take a cautious approach in loosening unless there is significant belt-tightening coming after the Budget on 30 October that dampens growth expectations.”
For Monica George Michail, associate economist at the National Institute of Economic and Social Research (NIESR), given that inflation is set to gently rise towards the end of the year, and that underlying inflation remains elevated, “this reduces chances of a rate cut tomorrow, and new developments will be closely monitored by the Monetary Policy Committee.”
This article was first published on Mortgage Solutions sister site, YourMoney.com. Read the story here.
