18 September: Bank Rate Likely To Hold At 5% Tomorrow
The headline rate of inflation rose by 2.2% in the 12 months to August, unchanged from July, according to figures out today from the Office for National Statistics, writes Kevin Pratt.
But once volatile prices for items such as food, alcohol, tobacco and energy are excluded, the core figure jumped from 3.3% to 3.6%, while inflation in the service sector increased from 5.2% to 5.6%.
These figures may deter the Bank of England from reducing its main interest rate from 5% when its decision-making Monetary Policy Committee meets tomorrow.
The Bank Rate is used to control inflation, with higher borrowing costs seen as the most effective way stem price rises. It was reduced to its current level from 5.25% in August, the first cut since 2021.
Nicholas Hyett, investment manager at Wealth Club, said: “High core inflation increases the chances of the Bank choosing to leave interest rates unchanged.
“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 [up 22.2% in August]. 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.”
The Bank will also monitor today’s interest rate decision by its equivalent in the US, the Federal Reserve, which is expected to trim its main rate from…
