Gone are the days when monthly inflation reports dramatically exceeded expectations, causing waves of panic and a flurry of activity on trading floors. The latest data, released this morning, presented a much calmer picture. The headline inflation rate held steady at 2.2 percent, exactly as anticipated.
Beneath the surface, there were some notable developments, but nothing significant enough to alarm the Monetary Policy Committee (MPC).
Read more: Inflation Holds at 2.2 Percent Ahead of Bank of England’s Interest Rate Decision
Core inflation and services inflation, which provide a clearer picture of underlying price pressures, saw slight increases in August, though these rises were largely in line with forecasts. Services inflation, a growing concern for rate-setters recently, actually came in marginally below the Bank of England’s November predictions. It edged up to 5.6 percent from 5.2 percent the previous month, largely due to ‘base effects’—the impact of last year’s figures on the annual comparison.
Some of the strength in services inflation can be linked to volatile areas, such as air fares, which spiked by 22 percent month-on-month, marking the second highest increase on record. The MPC often adjusts for such volatile components in its measures of underlying services inflation.
Bank of England’s Upcoming Announcement
Matt Swannell, chief economic advisor to the EY Item Club, suggested that the recent rise in services inflation should be viewed as a temporary blip. Food and energy inflation also fell short of expectations, reinforcing the notion that overall inflation is relatively under control.
However, this doesn’t necessarily mean the Bank will lower rates in its upcoming announcement. Services inflation remains too high for the Bank’s comfort, and regular pay growth is still over 5 percent, with unemployment dropping to 4.2 percent, indicating a tight labor market.
The prevailing expectation is for the Bank of England to keep rates unchanged tomorrow. Economists, however, predict continued moderation in inflationary measures over the remainder of the year, which could lead to at least one more rate cut. Sanjay Raja, chief UK economist at Deutsche Bank, noted that the MPC is likely to interpret the figures as a “positive sign” that underlying price pressures are easing.
A rate cut in November seems probable, but the outlook beyond that remains uncertain. It’s important to remember that while inflationary pressures are expected to ease, high interest rates will persist, so significant rate cuts are unlikely in the near term. Nonetheless, it appears increasingly feasible to reduce rates without reigniting inflation.
Read more: The Bank of England Decision That Really Matters This Week
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
Functional
Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
By Benjamin
Gone are the days when monthly inflation reports dramatically exceeded expectations, causing waves of panic and a flurry of activity on trading floors. The latest data, released this morning, presented a much calmer picture. The headline inflation rate held steady at 2.2 percent, exactly as anticipated.
Beneath the surface, there were some notable developments, but nothing significant enough to alarm the Monetary Policy Committee (MPC).
Read more: Inflation Holds at 2.2 Percent Ahead of Bank of England’s Interest Rate Decision
Core inflation and services inflation, which provide a clearer picture of underlying price pressures, saw slight increases in August, though these rises were largely in line with forecasts. Services inflation, a growing concern for rate-setters recently, actually came in marginally below the Bank of England’s November predictions. It edged up to 5.6 percent from 5.2 percent the previous month, largely due to ‘base effects’—the impact of last year’s figures on the annual comparison.
Some of the strength in services inflation can be linked to volatile areas, such as air fares, which spiked by 22 percent month-on-month, marking the second highest increase on record. The MPC often adjusts for such volatile components in its measures of underlying services inflation.
Bank of England’s Upcoming Announcement
Matt Swannell, chief economic advisor to the EY Item Club, suggested that the recent rise in services inflation should be viewed as a temporary blip. Food and energy inflation also fell short of expectations, reinforcing the notion that overall inflation is relatively under control.
However, this doesn’t necessarily mean the Bank will lower rates in its upcoming announcement. Services inflation remains too high for the Bank’s comfort, and regular pay growth is still over 5 percent, with unemployment dropping to 4.2 percent, indicating a tight labor market.
The prevailing expectation is for the Bank of England to keep rates unchanged tomorrow. Economists, however, predict continued moderation in inflationary measures over the remainder of the year, which could lead to at least one more rate cut. Sanjay Raja, chief UK economist at Deutsche Bank, noted that the MPC is likely to interpret the figures as a “positive sign” that underlying price pressures are easing.
A rate cut in November seems probable, but the outlook beyond that remains uncertain. It’s important to remember that while inflationary pressures are expected to ease, high interest rates will persist, so significant rate cuts are unlikely in the near term. Nonetheless, it appears increasingly feasible to reduce rates without reigniting inflation.
Read more: The Bank of England Decision That Really Matters This Week