Inflation in the UK remained steady at 2.2% last month, with growing price pressures in the services sector as airfares surged, offsetting a decrease in petrol prices. The Office for National Statistics (ONS) reported that the Consumer Prices Index (CPI) has stayed above the 2% target for the second consecutive month, following an increase in July. Services sector inflation climbed to 5.6% in August from 5.2% in July, driven by rising airfares on European routes. Despite this, prices at petrol stations fell. The Bank of England is expected to maintain interest rates at 5% in light of these findings.
Grant Fitzner, chief economist at the ONS, highlighted the fluctuation in prices, attributing the stability of inflation in August to various offsetting movements in prices. While airfares to European destinations notably rose, costs at fuel pumps decreased, along with expenses at restaurants and hotels. The data also revealed a slight drop in shop-bought alcohol prices compared to the previous year. Economists predict that CPI may surpass the 2% target in the coming months, which could delay any immediate rate cuts.
The latest figures reflect underlying price pressures in the economy, with services inflation bouncing back after a decline in July. Monica George Michail of the National Institute of Economic and Social Research suggested that due to the anticipated gradual increase in inflation towards the year-end, a rate cut in the near future is unlikely. Despite more manageable inflation, concerns remain for many households across the UK, grappling with the persisting higher prices.
Airfares surged by 22.2% between July and August, marking the second-largest increase since record-keeping began in 2001. Meanwhile, motorists benefitted from lower petrol prices, with the average cost at 142.3p per litre in August, down from 148.5p a year earlier. The overall inflation pattern suggests a rate cut in September is improbable, but November remains a potential window for adjustments according to PwC economist Jake Finney.
Additionally, the CPIH measure, which includes housing costs, held steady at 3.1% in August, while the Retail Prices Index (RPI) decreased to 3.5% from 3.6% in July. The ongoing pressures on prices highlight the delicate balance faced by policymakers in navigating the UK’s economic landscape amidst fluctuating inflation rates.