UK inflation rose to 3.1% in the year to August, up from 2.9% in July, driven by a surge in fuel costs. The Bank of England is still expected to hold interest rates at 3.75% on Thursday, even as markets price in multiple hikes over the coming year.
UK inflation accelerates on fuel costs
The Consumer Prices Index climbed to 3.1% in the year to August, up from 2.9% in July, the Office for National Statistics said. On a monthly basis, CPI rose 0.5% in August, driven by transport costs, particularly motor fuels. Fuel inflation jumped from 15.3% to 23% month on month.
Core inflation, which strips out food and energy, stayed unchanged at 2.6% in August, while services inflation held at 3.4%. Food and drink inflation was flat at 1.3%, its lowest since September 2021.
Bank of England expected to hold rates
Despite the jump in headline inflation, many economists are predicting the Bank of England will leave Bank Rate at 3.75% on Thursday. Money market pricing puts the odds of a hold at 80%, against a 20% chance of a hike to 4%.
Looking further out, financial markets are pricing in at least four UK rate rises by the end of 2027, which would lift Bank Rate to 4.75%. Susannah Streeter, chief investment strategist at Wealth Club, said "The pressure on the Bank of England to raise rates is mounting".
Gilt yields moved the other way on Wednesday. Ten-year gilt yields, which hit their highest since 2007 this week, fell 5 basis points to 5.35%.
UK inflation outpaces the eurozone
The UK's 3.1% inflation rate is higher than France's 2.7% and Germany's 2.9% flash estimates for August. The United States, by contrast, recorded a higher 3.4% inflation rate in August. Analysts at Capital.com said the rise stems from external energy and input-cost pressures rather than a domestic wage-price spiral, giving the Bank of England room to stay patient this week.
Source: The Guardian
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