UK August Inflation Rate 2.2%... "Interest Rate Expected to Remain Unchanged Tomorrow"

The UK’s Consumer Price Index (CPI) inflation rate for August remained unchanged at 2.2% compared to the previous month.

On the 18th (local time), the UK Office for National Statistics (ONS) announced that the August CPI rose 2.2% year-on-year. This matches both the figure from July and market experts’ expectations of 2.2%.

United Kingdom August Consumer Price Index (CPI)

The overall consumer price inflation rate stayed close to the Bank of England’s (BOE) target of 2%, but the service price inflation rate, which the BOE closely monitors, rose to 5.6%, higher than July’s 5.2% and above the market experts’ forecast of 5.5%. Airfares increased by 22.2% compared to the previous month, marking the second-highest rise since related statistics began in 2001.

This inflation data was released one day before the BOE’s Monetary Policy Committee meeting on the 19th, where the base interest rate will be decided. At last month’s meeting, the BOE cut the base rate by 0.25 percentage points from 5.25% for the first time since the COVID-19 pandemic. Interest rate futures markets had priced in a 26% chance of a rate cut this month, which increased to 35% following today’s inflation data release.

Ruth Gregory, UK economist at Capital Economics, said, “A rate hold tomorrow is already expected and remains so after today’s announcement,” adding, “I expect a further 0.25 percentage point cut in November.”