British Inflation Remains High at 3.8%

The UK’s annual inflation rate, as measured by the Consumer Price Index (CPI), held steady at 3.8% in August, unchanged from July. This figure, the highest among major advanced economies, is a key reason why the Bank of England is expected to be cautious about cutting interest rates again this year. The Bank of England’s Monetary Policy Committee (MPC) recently voted to maintain its benchmark interest rate at 4%.

Key Factors and Projections

• Core Inflation: Core inflation, which excludes volatile energy, food, and tobacco prices, eased slightly to 3.6% from 3.8% in July.
• Services Inflation: Services inflation, a metric closely watched by the Bank of England, slowed to 4.7% from 5.0%.
• Price Drivers: The main upward pressures on inflation in August were from the costs of petrol, hotels, and restaurants. This was partially offset by a slowdown in transport costs, particularly for airfares. Food and non-alcoholic drink prices saw a slight increase to 5.1% in August from 4.9% in July.
• Economic Outlook: The Bank of England has forecasted that inflation will reach 4% in September before beginning to fall, but it is expected to remain above its 2% target until spring 2027. Despite a loosening labor market and slowing wage growth, the rate of pay remains too high for the central bank to be comfortable with a more aggressive rate-cutting strategy.