UK inflation holds at 2.2% as fuel price drop offsets higher airfares | Inflation

The UK's annual inflation rate rose by 2.2% in August, similar to the rate in July. Petrol prices fell at the pump but airfares rose.

Figures from the Office for National Statistics (ONS) show the Government's preferred measure of the cost of living has held steady, in line with City economists' forecasts and remaining just above the Bank of England's 2% target.

Consumers saw inflation ease from above 10% in early 2023, largely due to lower rates of increase in energy and food prices.

The consumer price index (CPI) rose less than the bank's forecast of about 2.4 percent.

The Bank of Korea is under pressure to cut interest rates to boost economic growth, but officials are expected to keep rates on hold when they meet on Thursday.

TUC general secretary Paul Novak said the rate cut would help the economy.

He said: With inflation flat and broadly at target, and GDP growth at 0% for three of the past four months, it is time for the Bank of England to cut rates again.

Households are in desperate need of relief, following years of steep price increases and the longest wage cuts in modern history.

But Monica George Michail, an economist at the National Institute of Economic and Social Research, said sticky prices in the services sector would persuade bank policymakers to keep rates on hold. She said that would reduce the likelihood of a rate cut tomorrow.

Money markets showed that the probability that the central bank would leave borrowing costs unchanged rose to 73% on Thursday, up from 65% before the inflation numbers were released. In the U.S., the Federal Reserve is expected to cut interest rates for the first time in four years on Wednesday.

Core inflation, which excludes volatile items such as energy and food, rose 3.6% more than city economists had expected, while service price inflation remained high at 5.6%.

The ONS said consumers had limited spending on big-ticket items such as furniture and hotels had also cut prices to limit the rise in inflation.

Oil prices fell on concerns that the global economy is slowing and demand from major consumers such as China will weaken in the coming months.

However, rising airfares, especially to Europe, kept CPI above the bank's target, with services inflation jumping to 5.6% in August from 5.2% in July.

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The ONS outlined the pressures on household budgets over the past three years, saying while inflation eased last year, gas prices were 68% higher in August than in March 2021 and electricity prices were 45% higher.

Chancellor of the Exchequer Darren Jones said: Years of catastrophic inflation have taken their toll, and prices are still much higher than they were four years ago. So while manageable inflation is welcome, we know that millions of households across the UK are struggling. That’s why we are determined to rebuild Britain and fix the foundations of our economy to make every corner of the country a better place.

Shadow Chancellor Jeremy Hunt said: Labour inherited inflation that was well within the Bank of England’s target and today’s figures show that Labour must work as hard as it has to bring it down when it’s in government.

This includes denying potentially harmful new employment rights, which would increase labor costs and ultimately drive up prices.

Matthew Chapman, an associate at McKinsey & Company, told pollsters that consumers are reluctant to spend money on nonessential services.

High levels of service inflation, including hotel, package holiday and airfare, contributed to the overall CPI staying flat at 2.2%. However, consumers are showing a lower willingness to spend on these categories over the next three months after the summer, which could have implications for service inflation in the coming months, he said.

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