UK inflation held steady at 3.8% in August, with a noticeable increase in food prices once again. The Office for National Statistics (ONS) reported that food prices, particularly for items like cheese, fish, and vegetables, saw a fifth consecutive month of acceleration.
In the year leading up to August, food price inflation reached 5.1%, marking the highest level in 18 months. Additionally, fuel prices experienced an uptick, while hotel costs decreased less compared to the same period last year.
However, the rise in prices was partially offset by a slower increase in air fares compared to the previous year. This update on inflation comes just ahead of the Bank of England’s upcoming decision on interest rates.
Most economists anticipate that the base rate will remain at 4% due to persistent inflation, a weakened job market, and the forthcoming Autumn Budget. The Bank of England maintains a 2% inflation target and has gradually reduced the base rate to its current level of 4%.
Grant Fitzner, the ONS chief economist, highlighted the various price movements that balanced out inflation in August. Airfares notably contributed to lowering inflation, while prices at the pump and hotel accommodation costs played a role in offsetting these reductions. Food inflation continued its upward trend for the fifth month, with slight increases across various food items.
Chancellor Rachel Reeves emphasized the government’s efforts to alleviate financial burdens on families through initiatives like raising the National Living Wage and expanding benefits like bus fare caps and free school meals. In contrast, Shadow Chancellor Sir Mel Stride expressed concerns over persistently high inflation levels affecting families and attributed them to policy decisions impacting costs.
Inflation reflects changes in the prices of goods and services over time, with the Consumer Price Index (CPI) serving as the primary measure. The ONS tracks inflation based on a basket of goods and services to represent household spending patterns. A lower inflation rate does not imply prices are stagnant but rather rising at a slower pace.
The Bank of England’s management of interest rates aims to control inflation, with fluctuations affecting borrowing costs and consumer spending. While higher rates may curb inflation, they can strain household finances, as seen in the adjustments made following the peak rate in 2023.
Inflation surged in 2021, peaking at 11.1% in October 2022 due to increased energy and food prices. Global events, such as the Covid pandemic and the Ukraine conflict, further impacted inflation dynamics. Though inflation briefly dipped in September 2024, it began rising again the following month.
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