Inflation stays low and steady, but September interest rate cut looks unlikely

ITV News Business and Economics Editor Joel Hills reports on what could be ahead in light of inflation remaining at 2.2% in August

This is an important week for the UK economy but it’s possible, indeed highly probable, that nothing much will change.

This morning, the Office for National Statistics confirmed that the headline annual rate of inflation in the UK held steady at 2.2% in August, just above the Bank of England’s target rate.

The market view is the Bank will sit on its hands tomorrow, keeping interest rates at 5%.

None of which feels very exciting but beneath the hood, there are things to see.

Both “Services” and “Core” inflation (which strips out volatile foods and energy prices) revved last month in ways the Bank will worry about.

And we know that the upward pressure on prices is set to increase when energy bills rise by 10% in October, along with OFGEM’s price cap.

The headline rate of inflation fell below 3% in April but the Bank expects it to head back towards that level in the months ahead before falling back to target in the medium term.

Martin Weale, a former MPC member, told Joel Hills the Bank should not cut interest rates this month

The Bank has said it is seeking more compelling evidence that inflation has been tamed before it cuts interest rates again.

Investors think they’ll get it. The next full interest rate cut is priced in for November.

“Years of sky-high inflation have taken their toll and prices are much higher than four years ago,” says Darren Jones, chief secretary to the Treasury.

Quite so.

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But the encouraging news is that prices have become more stable and seem to increasingly be behaving in ways the Bank has forecast.

Food prices last month were just 1.3% higher than a year earlier and, during August, the price of some items fell, including fish, milk, food, cheese, eggs, fruit and vegetables.

The lived experience of many households will be that the cost of living crisis isn’t over yet but there are good reasons to feel hopeful it is the beginning of the end.

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