Holding firm to the Bank of England’s (BoE) inflationary target of 2%, the Consumer Prices Index (CPI) rose by 2.2% in the 12 months to August 2024, unchanged from July, the latest data from the Office for National Statistics (ONS) has revealed.
On a monthly basis, CPI rose by 0.3% in August 2024, the same rate as in August 2023.
The CPI including owner-occupiers’ housing costs (CPIH) rose by 3.1% in the 12 months to August 2024, also remaining unchanged from July.
On a monthly basis, CPIH rose by 0.4% in August 2024, the same rate as in August 2023.
The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from air fares, which rose this year but fell a year ago; the largest offsetting downward contributions came from motor fuels, and restaurants and hotels.
Core CPIH (excluding energy, food, alcohol and tobacco) rose by 4.3% in the 12 months to August 2024, up from 4.1% in July.
Meanwhile, the CPIH goods annual rate fell from negative 0.5% to negative 0.9%, while the CPIH services annual rate rose from 5.7% to 5.9%.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.6% in the 12 months to August 2024, up from 3.3% in July.
In addition, the CPI goods annual rate fell from negative 0.6% to negative 0.9%, while the CPI services annual rate rose from 5.2% to 5.6%.
Reaction:
Nathan Emerson, CEO at Propertymark:
“The positive news from today’s figures is that inflation remains broadly in line with the Bank of England’s target of 2%, which means that people shouldn’t witness the uncertainty and rapid price rises experienced in 2022 and 2023.
“Although a further drop in inflation would have of course been welcome news, Propertymark hopes the Bank of England feels in a strong enough position to consider a further cut in interest rates when they meet tomorrow.
“The combination of inflation sitting within bounds and any further cuts in base rate over the coming months has the potential to bring a new wave of confidence and affordability within the housing market.
“However, most importantly, it brings much welcome relief and financial flexibility to many households compared to only six months ago.”
Neil Rudge, chief banking officer, commercial at Shawbrook:
“The pause in price growth is welcome news for businesses.
“It boosts the likelihood of further base rate cuts, whether that happens tomorrow or later this year. It also reaffirms that last month’s rate cut—the first since 2021—was the right move.
“At Shawbrook, we’re seeing a consistent and steady flow of funding applications from SMEs, indicating that businesses are feeling optimistic and ready to act on growth plans that may have been shelved.
“With another rate cut potentially on the horizon, business leaders are beginning to focus on their next priority—whether that’s an acquisition, expansion, or an exit strategy.”
Russell Gous, editor-in-chief of TopMoneyCompare:
“While headline inflation held steady at 2.2% in August, core inflation rose from 3.3% to 3.6%, signalling persistent price pressures.
“This increase in core inflation—which excludes volatile items like food and energy—adds uncertainty to the pound.
“Although stable headline inflation might provide some short-term relief for sterling, the rise in core inflation raises concerns about the Bank of England’s next move.
“Markets still expect the BoE to hold rates tomorrow, but higher core inflation could delay rate cuts, potentially supporting the pound in the near term as the bank works to control underlying inflation.
“However, sterling’s recent strength—close to its highest level against the dollar since 2022—complicates matters, especially if the Federal Reserve opts for a half-point cut.
“A stronger pound could hamper growth, making it harder for the BoE to avoid rate cuts.
“With eurozone inflation falling to 2.2%, the UK’s inflation picture is more complex.
“Traders and investors should remain alert to possible fluctuations in GBP, particularly if the BoE signals a tougher stance on inflation.”
Michael Foote, editor-in-chief of Quotegoat.com:
“Inflation remains steady at 2.2%, just above the Bank of England’s target of 2%, and while this may not seem dramatic, it’s still a concern for consumers as it continues to erode spending power and chip away at savings.
“While far below the eye-watering 11.1% peak we saw two years ago, this level may still dampen hopes for further interest rate cuts from the Bank of England tomorrow.
“With inflation holding firm, mortgage rates could stay elevated, and borrowing costs on credit cards and loans are likely to remain high.”
David Hollingworth, associate director at L&C Mortgages:
“Inflation holding steady at a rate of 2.2% may sound underwhelming but is likely to be viewed positively.
“It was in line with forecasts so shouldn’t create any waves in what the market expects, and the Bank of England has already signalled that it expects inflation to rise as the year progresses.
“So, although above the target rate of 2%, today’s stable figure shouldn’t alter the expectations that we could see another rate cut before long.
“That is not thought likely to come in tomorrow’s MPC announcement and the decision to cut last month was finely balanced at 5-4 in favour.
“However, it shouldn’t undo any of the progress in mortgage rates which have once again been shifting rapidly as lenders have cut their fixed rates with gusto.
“That’s seen some substantial improvement in the available mortgage options with 2-year fixed rates now joining the 5-year deals below the 4% barrier.
“The level of competition between lenders remains intense and they’ve continued to reprice regularly to try and keep up with peers.
“That will help to keep rate improvements coming for mortgage borrowers, as the focus shifts to the base rate decision tomorrow.”
Nicholas Hyett, investment manager at Wealth Club:
“Core inflation rose in August and came in higher than expected, driven by rising transport prices and particularly air fares which rose an eye watering 22.2% between July and August.
“While some summer price hikes are normal, this is the second most dramatic take off in plane ticket prices since 2001.
“Cash strapped consumers received some relief from a slowdown in the rise of motor fuel and alcohol prices – with the overall goods inflation index continuing to see prices fall year-on-year.
“However, those rising air fares meant services inflation remains sky high and rising – hitting 5.9% year-on-year.
“High core inflation, coming in a touch above expectations, increases the chances the Bank of England choose to leave interest rates unchanged tomorrow.
“It’s a delicate balance to strike though – especially when headline numbers are driven by big movements in a single, seasonal variable like air fares.
“Leave rates too high for too long and risk an economic crash landing and a painful recession, cut them too soon and the danger of an inflationary tailspin increases.”
Jonathan Bone, lead mortgage adviser at Better.co.uk:
“It’s so frustrating to see that inflation isn’t budging, especially with the Bank of England about to announce its interest rate decision tomorrow.
“This situation is likely to delay any hopes of lower mortgage rates, which is a tough pill to swallow for those needing to remortgage this year or first-time buyers waiting for rates to drop.”
