Inflation stays sticky: Experts comment

Inflation held steady at 2.2% in the year to August, despite a jump in the cost of flights.

The rise in air fares was offset by lower fuel prices and prices in restaurants increasing more slowly, the Office for National Statistics (ONS) said.

The latest figures come as the Bank of England is expected to keep interest rates unchanged at 5% when it meets on Thursday.

Separate figures showed that private rents across the UK increased by 8.4% in the year to August.

The latest inflation figure means overall prices are rising at a pace slightly above the Bank of England’s target of 2%.

But the rate is significantly lower than at the peak of the cost of living crisis in 2022.

Grant Fitzner, chief economist at the ONS, said inflation “held steady” in August as price falls in some areas compensated for rises in others.

“The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year,” he added.

“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month, but rose at the same time last year.”

Raw material prices also fell last month, driven by lower crude oil prices.

While rents rose sharply, house prices went up in line with general prices at a pace of 2.2% in the twelve months to July.

Paresh Raja, CEO of Market Financial Solutions, said: “Many will have hoped that another drop in inflation today would lead to a rate cut on Threadneedle Street tomorrow, so this morning’s data could be seen as a setback. But after the challenges we’ve experienced over the past three years, it’s easy to fall into the trap of focusing too much on small CPI fluctuations. Instead, we ought to keep the broader picture in mind.

“The upside is that inflation remains very close to the Bank of England’s 2% target and that it held steady today rather than rising slightly, as some had predicted. Either way, a rate cut was against the odds tomorrow anyway. Therefore, today’s data is unlikely to significantly impact market activity or investors’ plans – it will likely be business as usual in the coming weeks. It does, however, reinforce the need for lenders to continue supporting borrowers as they navigate an uncertain, though increasingly stable, economic environment.

“Encouragingly, given the number of rate cuts across the market in recent weeks, we can see that many lenders are being proactive in moving with the times, which should help galvanise the market. Even with this latest inflation-related blip today, we expect the property market to continue to strengthen in the coming months.”
 
Jatin Ondhia, CEO of Shojin, said: “With inflation proving stubborn as it hovers just above the 2% mark, it’s another reminder that the fight against rising prices is far from over. The Bank of England has done well, albeit it at a cost, to stabilise inflation with its rate hikes, but persistent pressures mean we’re likely to see the Bank hold rates once again in tomorrow’s meeting.

“For investors, this highlights the importance of maintaining a resilient, well-diversified portfolio. Real estate continues to be a sturdy market in such conditions, offering a stable foundation amidst economic uncertainty. At the same time, alternative investments present opportunities to diversify further and balance risk, ensuring portfolios are better positioned to weather any ongoing inflationary challenges.

“Looking ahead, flexibility and strategic decision-making will be important as we push through what remains a frustratingly sticky inflationary environment.”
 
Lily Megson, Policy Director at My Pension Expert said, “Inflation remaining sticky as it wavers above target levels is a reminder that the financial pressures faced by savers aren’t going anywhere just yet. For those in or approaching retirement, who have contended with rising costs eroding the purchasing power of their pension pot, this only reinforces the need for careful financial planning. “Under-saving for retirement is a major issue, and now more than ever, it’s crucial that retirees and savers have access to the right tools and guidance. The government must finally prioritise financial education and ensure that independent financial advice is readily accessible, so people can reposition themselves during this period of uncertainty with confidence and stay on track to meet their retirement goals.”
 
Ben Thompson, deputy CEO at Mortgage Advice Bureau, says, “The Bank of England had been hoping inflation would drop, but in recent months this has proved a little tricky. For homeowners and would-be buyers, thankfully this hasn’t resulted in noticeable increases to Swap rates, and thus mortgage rates have remained steady and some have even reduced slightly. Some mortgage rates are now as low as they were before the infamous mini-budget of 2022, and though these cheap rates are mainly for those with larger deposits, the market is improving across all sectors.”
 

Rate cut completely off the table

Sam North, Market Analyst at eToro, says: “UK services inflation slightly exceeded expectations in August at 5.6% year-on-year, prompting a brief hawkish lift in GBP.

“However, the release is unlikely to significantly impact the BoE’s upcoming policy decision, with an unchanged Bank Rate still expected.

“The consensus for tomorrow is for a 7-2 vote split, and while I don’t think this will change that, the BoE will hope this is not the start of a new upwards inflation trend.”

George Lagarias, Chief Economist at Forvis Mazars comments: “This inflation figure will do little to change the Bank of England’s course towards a November rate cut. On the one hand, it is good to see the costs of food, restaurants and hotels drop. A sharp year-on-year rise in airfares should not matter so much as we enter Fall season. However, core inflation drifted higher to 3.6%, and so did services inflation, back to 5.6%. Developed world economies have caught a lucky break from China’s economic slowdown which is deflating goods, at a time when their service costs remain too high for comfort. These inflation numbers do allow for a modicum of rate cuts by central banks, but they make it crystal clear that a victory lap on the inflation-fighting front would be extremely premature.”
 
Andy Mielczarek, CEO of Chetwood Financial, said: “Inflation holding steady after recent sharp drops is a further shot in the arm for both consumers and businesses. Indeed, this relative period of calm sets the stage for continued recovery and brighter economic prospects.

“The Bank of England will still be watching closely, but with inflation stable, today’s figures are unlikely to prompt any major shifts in their short-term strategy. Striking the right balance on interest rates is complex, but we’re hopeful they can maintain this positive momentum.

“Consumers can take comfort knowing we’re much closer to the Bank’s target rate than we were a year ago. Prices may still be high, but rising wages should start to ease the pressure. Meanwhile, savers could still capitalise on higher fixed-term rates before potential cuts arrive.”