UK inflation is steady at 2.2% ahead of Bank of England's next rate decision


LONDON — Inflation in the U.K. held steady at an annual rate of 2.2% in August, with higher air fares offset by lower fuel costs and restaurant and hotel bills, official figures showed Wednesday.

The latest reading from the Office of National Statistics means inflation remains just above the Bank of England’s target of 2%.

Last month, the central bank reduced its main interest rate by a quarter-point to 5%, the first cut since the onset of the pandemic.

Central banks around the world dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to shoot up, first as a result of supply chain issues built up during the pandemic and then because of Russia’s full-scale invasion of Ukraine which pushed up energy costs.

Most economists think the bank will opt to keep borrowing costs unchanged after its latest policy meeting on Thursday as a majority of the nine-member Monetary Policy Committee remains wary about inflation in the crucial services sector. Wednesday’s data showed that services sector inflation jumped to 5.6% in August from 5.2% in July as a result of higher air fares across European routes.

However, they think that the bank will most likely cut again in November, in the wake of the government‘s budget on Oct. 30.

The new Labour government has said that it needs to plug a 22 billion-pound ($29 billion) hole in the public finances and has indicated that it may have to raise taxes and lower spending, which would likely weigh on the near-term outlook for the British economy and put downward pressure on inflation.

“An interest rate cut on Thursday is looking unlikely with the majority of the Monetary Policy Committee likely to want to assess the impact of next month’s budget before deciding when to loosen policy again,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.

Central banks around the world have started cutting interest rates as inflation rates have fallen from multi-decade highs. Later Wednesday, the U.S. Federal Reserve is expected to cut rates for the first time in four years.



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