By Suban Abdulla
British inflation held steady in August but rose in the services sector which is closely watched by the Bank of England, data showed on Wednesday, adding to bets in financial markets that the central bank will keep interest rates on hold on Thursday.
Consumer price inflation of 2.2% last month was unchanged from July, the Office for National Statistics said. The figure matched the median forecast in a Reuters poll of economists.
The BoE, which cut interest rates to 5% on Aug. 1, had expected inflation of 2.4% in August. It has forecast the CPI will rise to around 2.75% by the end of 2024.
“Today’s data are unlikely to unlock another rate cut by the Bank of England tomorrow,” Yael Selfin, chief economist at KPMG UK, said. “While we expect the Bank of England to look beyond the anticipated higher headline inflation, services inflation remains elevated.”
Sterling strengthened against the dollar after the inflation data was published and investors trimmed their bets on the BoE cutting rates on Thursday to a roughly 28% chance.
Services inflation – an indicator of domestic price pressures – rose to 5.6% from 5.2% in July. The Reuters poll had pointed to a smaller rise to 5.5%.
The ONS said air fares, which jumped 22.2% between July and August, helped to push up services inflation. Fare prices usually rise between the two months but the ONS said the jump was the second largest since records began in 2001.
Prime Minister Keir Starmer’s Labour government, which is trying to speed up economic growth, said the data showed inflation was more manageable – it hit a four-decade high of over 11% nearly two years ago – but prices remained high.
Core inflation, which excludes more volatile energy, food and tobacco prices, sped up on a monthly and yearly basis.
