How will this affect the Bank of England's base rate decision tomorrow?
Annual inflation in the UK was 2.2% in August 2024, unchanged from the previous month, according to data released by the Office for National Statistics (ONS) on Wednesday.
The Consumer Price Index (CPI) rose by 0.3% on a monthly basis in August, which is the same rate as in last year.
The ONS reported that the largest upward pressure on the annual inflation rate came from air fares, which rose this year but fell a year ago. In contrast, the largest offsetting downward contributions came from motor fuels, and restaurants and hotels.
“Inflation held steady in August as various price fluctuations offset each other,” said Grant Fitzner, ONS chief economist. “The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year.
“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month, but rose at the same time last year.
“Following two months of growth, raw material prices fell, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed again.”
CPI rose by 2.2% in the 12 months to August 2024, unchanged from July 2024.
— Office for National Statistics (ONS) (@ONS) September 18, 2024
Read the release ➡️ https://t.co/3rW4NgMQNJ pic.twitter.com/AvTfVmsj53
“The Bank of England had been hoping inflation would drop, but in recent months, this has proved a little tricky,” commented Ben Thompson, deputy chief executive at mortgage intermediary brand and specialist network Mortgage Advice Bureau. “For homeowners and would-be buyers, thankfully this hasn’t resulted in noticeable increases to swap rates, and thus mortgage rates have remained steady, and some have even reduced slightly.
“Some mortgage rates are now as low as they were before the infamous mini budget of 2022, and though these cheap rates are mainly for those with larger deposits, the market is improving across all sectors.”
According to Andy Mielczarek, chief executive of digital bank Chetwood Financial, inflation holding steady after recent sharp drops is a further shot in the arm for both consumers and businesses.
“This relative period of calm sets the stage for continued recovery and brighter economic prospects,” he added. “The Bank of England will still be watching closely, but with inflation stable, today’s figures are unlikely to prompt any major shifts in their short-term strategy. Striking the right balance on interest rates is complex, but we’re hopeful they can maintain this positive momentum.
“Consumers can take comfort knowing we’re much closer to the bank’s target rate than we were a year ago. Prices may still be high, but rising wages should start to ease the pressure.”
Paresh Raja, chief executive of specialist finance provider Market Financial Solutions, believe today’s data is unlikely to significantly impact market activity or investors’ plans as it will likely be business as usual in the coming weeks.
“Many will have hoped that falling inflation would lead to a rate cut on Threadneedle Street tomorrow, so this morning’s data could be seen as a setback,” Raja said. “But after the challenges we’ve experienced over the past three years, it’s easy to fall into the trap of focusing too much on small CPI fluctuations. Instead, we ought to keep the broader picture in mind.
“The upside is that inflation remains very close to the 2% target, and a rate cut was against the odds tomorrow anyway. It does, however, reinforce the need for lenders to continue supporting borrowers as they navigate an uncertain, though increasingly stable, economic environment.
“Encouragingly, given the number of rate cuts across the market in recent weeks, we can see that many lenders are being proactive in moving with the times, which should help galvanise the market. Even with this latest inflation-related blip today, we expect the property market to continue to strengthen in the coming months.”
Any thoughts on the latest UK inflation figures? Let us know by leaving a comment in the discussion box at the bottom of the page.
