Inflation rose to 3.8 per cent in the year to August, according to official data, sending a warning to Bank of England officials ahead of a crucial interest rate vote on Thursday.
The previous reading for inflation was 3.8 per cent, with the latest reading likely to confirm Bank of England rate-setters will vote to hold interest rates at its next decision on Thursday.
Economists are also likely to pay close attention to the impacts of high food price inflation and services inflation, given their respective impacts on Britons’ views of the cost of living and wage pressures.
The Office for National Statistics (ONS) said services inflation was 4.7 per cent, which was slightly lower than the five per cent level the previous month.
Core food price inflation was 5.1 per cent over the 12-month period, higher than the previous month.
Price growth could still get worse, with the Bank’s forecast last month predicting it would be double its two per cent target rate in September.
Its monetary policy report said inflation would only fall back to two per cent in 2027.
Stubborn inflation poses a challenge to policymakers
Chancellor Rachel Reeves is reportedly considering plans to ease the cost of living for households by reducing energy bills, which she believes could be achieved by exempting them from VAT.
But the imminent risks of stubborn inflation and the delay to the Budget are likely to weigh on policymakers’ minds at tomorrow’s interest rates decision.
City AM’s Shadow Monetary Policy Committee voted 8-1 to hold interest rates, with most economists claiming a “pause” would be more suitable in light of high inflation.
Vicky Pryce, chief economics adviser to the British Chambers of Commerce, was the only member on the mock panel to vote for a 25 basis cut due to stagnation in the UK economy.
Other members also pointed to loosening in the UK jobs market as being likely to weigh down on price growth in the next year.
Forecasters widely believe that interest rates will be held, but many are looking out for changes in language signalling that monetary policy could become more restrictive.
Votes made by two of the MPC’s most dovish members, external members Alan Taylor and Swati Dhingra, will also be crucial in showing whether rate-setters are still pushing for faster rate cuts.