UK inflation holds steady in August, matching expectations

LONDON — U.K. inflation held steady during the month of August, data from the Office for National Statistics showed Wednesday, and matched analyst expectations.

The headline consumer price index (CPI) was in line with the previous 2.2% reading in July and also matched a prediction from a Reuters poll of economists. Headline CPI had come in at 2% in May and June, in line with the Bank of England’s target rate.

Services inflation — which is closely watched by the BOE, given its dominance within the U.K. economy and its reflection of domestically-generated price rises — rose to 5.6% in August from 5.2% in July.

Core inflation, excluding energy, food, alcohol and tobacco, came in at 3.6%, up from the 3.3% recorded in July.

Higher air fares were the largest contributors to upward price pressure, having risen from lower base last year, the ONS said. Motor fuel, hotels and restaurants, meanwhile, saw the biggest declines.

BOE policymakers will meet on Thursday to give their latest monetary policy decision, with traders largely expecting the bank to hold rates steady.

Bets for a second consecutive 25 basis point cut doubled to almost 40% this week, however, on the prospect of a more aggressive reduction in borrowing costs when the U.S. Federal Reserve meets Wednesday.

The reading also comes ahead of the U.K.’s forthcoming Oct. 30 Autumn Statement, during which the new Labour government will set out its budget plans for the new term.

Chief Secretary to the Treasury, Darren Jones, said he welcomed “more manageable inflation” but noted that significant work was still needed to “fix the foundations” of the economy.