UK Inflation Steady At 2.2%

UK consumer prices posted a steady growth and services inflation accelerated further in August, cementing expectations that the Bank of England will pause interest rate cuts on Thursday.

The consumer price index gained 2.2 percent from a year ago, the same rate as seen in July, the Office for National Statistics reported Wednesday.

Inflation stayed above the 2 percent target for the second straight month and the 2.2 percent rate came in line with expectations.

The increase in air fares was largely offset by downward contributions from motor fuels, and restaurants and hotels.

Meanwhile, core inflation, excluding prices of energy, food, alcohol and tobacco, accelerated to 3.6 percent from 3.3 percent in the previous month.

Moreover, services inflation rose to 5.6 percent from 5.2 percent. On the other hand, the decline in good prices moved down to 0.9 percent from 0.6 percent.

Month-on-month, overall consumer prices climbed 0.3 percent, in contrast to the 0.2 percent fall in the previous month.

Capital Economics’ economist Ruth Gregory said a pause on interest rate cuts was already expected tomorrow and today’s release cements that view.

The economist continues to forecast the next 25 basis point rate cut will take place in November and that rates will be reduced at alternative BoE meetings until June.

At the August meeting, the BoE had lowered its benchmark rate for the first time since the onset of the coronavirus pandemic. The bank rate was reduced by 25 basis points to 5.00 percent from 5.25 percent, which was the highest since early 2008.

Another report from the ONS today showed that factory gate prices grew at the slowest pace in seven months in August.

Output prices were up only 0.2 percent, the slowest rate in the current sequence of growth. This followed a 0.8 percent rise in July. Month-on-month, output prices slid 0.3 percent after remaining flat.

Input prices decreased 1.2 percent year-on-year in August, reversing a 0.2 percent gain in July. This was the first drop in three months. On a monthly basis, the drop in input prices deepened to 0.5 percent from 0.3 percent.

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