Inflation remains steady at 2.2% – business industry reaction

Latest Office for National Statistics (ONS). data has shown that Inflation remained steady at 2.2 per cent in August, slightly above the Bank of England’s two per cent target. Rising airfares were balanced by lower fuel prices and a slowdown in restaurant price increases.

The Bank of England is expected to keep interest rates at five per cent, with potential cuts anticipated in November. Inflation may tick higher in the second half of the year due to rising energy costs, but increases are not expected to be as steep as in 2022 and 2023.

CPI inflation held steady in August, with the second-biggest monthly rise in airfares on record (since 2001) and slower falls in second-hand car prices offset falls in hotels and restaurant prices. Disappointingly, the closely-watch services inflation rose to 5.6 per cent after a surprise dip last month.

Commenting on the inflation figures for August, ONS Chief Economist Grant Fitzner said “Inflation held steady in August as various price fluctuations offset each other. 

 “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.”  

Anna Leach, Chief Economist at the Institute of Directors, said “Today’s inflation outturn is in line with expectations and doesn’t change our view that there’ll be a further rate cut later this year. Inflation is expected to be a bit higher in the coming months, following confirmation from Ofgem that the energy price cap will rise by 10% in Q4. Services inflation and wage inflation also both remain uncomfortably high. However, inflation should moderate further out as both services and wage growth continue to drift lower, and inflation expectations moderate further.

“As the Budget edges closer, the key priority for the UK is to shift onto a higher growth path. Challenging public finances reflect the impact of past shocks on the economy, but also a structural weakness in UK investment – both public and private. Updated fiscal rules that accommodate borrowing for investment, a business tax roadmap that provides a supportive platform for business decision-making, an industrial strategy that clearly underpins the priorities for UK growth, and well-designed policies to draw people back into the labour market will all help cement the foundations for stronger non-inflationary growth.”

TUC General Secretary Paul Nowak said “With inflation unchanged and broadly at target, and GDP growth at zero for three of the last four months, the time is right for the Bank of England to make another rate cut. 

“Households are in desperate need of relief, with several years of steep price rises coming on top of the longest pay squeeze in modern history. Inflation is now falling across most high-level categories, and the economy needs the boost that a further rate cut would bring. The new government’s plans for growth are welcome. Long-overdue investment will revitalise UK industry, start to address the Tories’ manufacturing decline and help deliver good jobs and improve pay. But rate setters need to do their bit too.” 

Martin Sartorius, Principal Economist, CBI, said “Inflation has fallen short of the Bank of England’s latest forecast expectations for the second month in a row. This will be welcomed by households and businesses, although they will still be feeling the pinch from three years of elevated costs growth.

“While the Bank’s Monetary Policy Committee will be reassured by today’s data, they’re likely to remain wary of loosening policy too quickly. Inflation is expected to pick up later this year and domestic price pressures, such as wage growth, still pose an upside risk to the outlook. That should result in a gradual path for interest rate cuts going forward, with rates likely to stay unchanged this month.”