UK inflation holds steady at 2.2% ahead of next Bank of England rate decision

Inflation in the United Kingdom held steady at an annual rate of 2.2% in August, with higher airfares offset by lower fuel costs and restaurant and hotel bills, official figures showed on Wednesday.

The latest reading from the Office for National Statistics means inflation remains just above the Bank of England’s 2% target.

Last month, the central bank cut its main interest rate by a quarter point to 5%, the first cut since the start of the pandemic.

Central banks around the world sharply raised borrowing costs from near zero during the coronavirus pandemic as prices began to soar, first as a result of supply chain problems built up during the pandemic and then because of Russia’s large-scale invasion of Ukraine, which drove up energy costs.

Most economists expect the bank to keep borrowing costs unchanged after its latest policy meeting on Thursday. However, they think it is most likely that the bank will cut them again in November, following the government’s budget on October 30.

The new Labour government has said it needs to plug a 22 billion pound ($29 billion) hole in public finances and has indicated it may have to raise taxes and cut spending, which would likely weigh on the short-term outlook for the British economy and put downward pressure on inflation.

“A rate cut on Thursday looks unlikely as the Monetary Policy Committee majority will likely want to assess the impact of next month’s budget before deciding when to ease policy again,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.