**Inflation Holds Steady as Interest Rate Decision Looms**
As inflation remains above target, the Bank of England is gearing up for its next interest rate decision. The consumer prices index stood at 2.2pc in August, unchanged from July, according to the Office for National Statistics. Services inflation, a key factor in the Bank of England’s decision-making process, rose from 5.2pc to 5.6pc.
**Impact on Interest Rate Decision**
The steady inflation rate in August has implications for the upcoming interest rate decision by the Bank of England. Economists believe that the latest figures indicate that the Bank will likely press the pause button on interest rate cuts at its next meeting. Ruth Gregory, Deputy Chief UK Economist at Capital Economics, stated that a rate cut is already expected in November, with rates potentially being cut at alternative Bank of England meetings until June.
**Analysis of Inflation Components**
The Office for National Statistics highlighted various factors contributing to the steady inflation rate in August. Air fares, particularly to European destinations, showed a significant monthly rise, offsetting lower prices at the pump and falling costs at restaurants and hotels. Additionally, shop-bought alcohol prices fell slightly this month but rose at the same time last year. Raw materials prices also fell, driven by lower crude oil prices, while the cost of goods leaving factories experienced a slowdown.
**Expectations and Market Response**
With inflation holding firm and services inflation on the rise, traders have reduced their bets on the Bank of England cutting interest rates. Money markets now indicate a 14pc chance of a rate cut, down from 25pc before the inflation figures were released. Despite this, traders are still pricing in two more rate cuts by the end of the year, albeit by a smaller margin. The value of the pound inched higher following the inflation data, with sterling up 0.1pc against the dollar to $1.317.
Overall, the inflation data for August sets the stage for the Bank of England’s upcoming interest rate decision, with services inflation and air fares playing significant roles in shaping the economic landscape. As policymakers evaluate the impact of inflation on the economy, market participants are closely monitoring developments to anticipate future monetary policy actions.
