UK inflation steady as Bank of England preps rate decision

British annual inflation stayed at 2.2 percent in August, official data showed Wednesday, fueling expectations that the Bank of England would decide against a successive interest-rate cut this week.

The Consumer Prices Index matched July’s level, already above the BoE’s target of 2.0 percent, the Office for National Statistics (ONS) said in a statement.

Analysts said the latest data firmed expectations that the central bank would likely avoid cutting its key interest rate on Thursday, having reduced borrowing costs by 25 basis points in August for the first time in more than four years.

“A pause on interest rate cuts was already expected and today’s release cements that view,” said Ruth Gregory, deputy chief UK economist at Capital Economics research group.

“We continue to assume the next 25 basis-point rate cut will take place in November.”

– Pound boost –

The pound rose solidly against the dollar on expectations the BoE would leave its rate at 5.0 percent, while also reflecting a widely expected cut in US borrowing costs later Wednesday, analysts said.

The UK central bank trimmed borrowing costs last month for the first time since the onset of the Covid pandemic in early 2020 after UK inflation retreated from four-decade highs, briefly meeting its two-percent target in May before edging back up.

“Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago,” Darren Jones, a senior official at the UK Treasury, said in response to Wednesday’s data.

The main inflationary movements in August came from large monthly rises to airfares, particularly for European destinations, said Grant Fitzner, chief economist at the ONS.

“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels,” he said.

The data comes after official figures last week showed that Britain’s economic output stalled in July, dealing a blow to the new Labor government that has put growth expansion at the top of its priority list.

Prime Minister Keir Starmer’s Labor government won power at the start of July, ending 14 years of Conservative rule.

The BoE hiked borrowing costs 14 times between late 2021  when they stood at a record-low 0.1 percent  and the second half of last year.

Supply-chain disruptions following Covid lockdowns, together with soaring food and energy prices caused by Russia’s invasion of Ukraine, sent global inflation surging.