UK inflation held steady in August, but a rise in services inflation raises concerns

Inflation in Britain remained steady at 2.2% year-on-year in August, in line with expectations, while monthly inflation rose by 0.3%, matching forecasts after a 0.2% decline in July.

Core inflation, which excludes volatile components like energy, food, and tobacco, accelerated to 3.6% year-on-year, up from 3.3% in the previous month. However, this increase was also in line with expectations.

The most notable development was the rise in services inflation, a key indicator of domestic price pressures closely monitored by the Bank of England. It climbed to 5.6% in August, surpassing both July’s 5.2% increase and forecasts of 5.5%.

The persistent rise in services inflation signals that the central bank may maintain interest rates at 5.0% in tomorrow’s policy meeting. This follows a rate cut in August, which had an immediate positive impact on sterling.

The UK government remains committed to accelerating economic growth and has described the current inflation level as manageable, though it acknowledged that prices remain elevated