UK Inflation Stays Unchanged at 2.2% in August as Airfare Rises Balance Fuel Price Drop

Inflation Holds Steady in August

The UK’s annual inflation rate remained 2.2% in August, matching July’s figure. According to the Office for National Statistics (ONS), higher airfares, especially for European destinations, countered the benefit of lower petrol prices. This rate continues to hover above the Bank of England’s target of 2%, keeping pressure on household budgets.

Airfare Increase Offsets Lower Petrol Prices

While petrol prices at the pump dropped, driven by concerns over slower global economic growth, the cost of air travel rose sharply. A 22% rise in airfares, the second-largest increase since 2001, contributed to maintaining the inflation rate, offsetting the fall in fuel prices.

Consumer Prices and Services Sector

Although inflation has eased from over 10% earlier this year, services sector inflation remains high, rising from 5.2% in July to 5.6% in August. However, restaurants and hotels saw smaller price increases, with growth slowing to 4.4%, giving consumers some relief.

Household Pressures Remain

Despite lower inflation, many families are still struggling with the cost of living. Gas prices in August were 68% higher than in March 2021, and electricity costs were 45% higher. Treasury officials acknowledge that years of high inflation have taken a toll on household finances.

Interest Rates Likely to Remain Unchanged

The Bank of England is expected to maintain interest rates at 5% during its meeting. While some experts predict a rate cut in November, the central bank is pressured to manage inflation while supporting economic growth.

Ongoing Economic Outlook

As inflation stabilizes, economists suggest the Bank of England will remain cautious, focusing on long-term economic conditions. While falling raw material costs, such as crude oil, have helped ease price pressures, the overall inflation rate remains a concern.

Government Response

Darren Jones, the Treasury’s chief secretary, welcomed the stabilization of inflation but acknowledged the persistent pressure on household budgets. The government remains focused on long-term economic stability, aiming to reduce inflation while addressing the needs of struggling families.

Future Projections

The Bank of England expects inflation to rise slightly in the second half of the year, with household energy bills set to increase in October. However, prices are unlikely to spike as dramatically as they did in 2022 and early 2023.

Inflation Remains a Challenge

While inflation has moderated from its peak, the UK’s economic outlook remains uncertain, particularly as higher airfares and energy costs affect households. The government and the Bank of England must carefully balance growth and inflation in the coming months.

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