In August, the annual inflation rate in the United Kingdom remained stable as declining prices for petrol, diesel, and alcohol products offset the increase in air fares and prices of second-hand cars. According to the data released by the Office for National Statistics, consumer prices rose by 2.2% year-over-year in August, a figure that remained unchanged from July.
This marked the end of a six-month trend of decreasing inflation rates. The reported inflation figure was in line with analysts' expectations, which also settled at 2.2%. However, it fell short by 0.2 percentage points when compared to the forecast set by the Bank of England, which aims for an inflation rate of 2%.
In their August projections, the central bank warned of a potential uptick in inflation, predicting it could rise to around 2.75% by the end of 2024. The surge in air fares was significant, as they experienced the second-largest increase between July and August 2024. On the flip side, motor fuel prices saw a decrease of 3.4% year-over-year in August, a notable decline when juxtaposed against the 1.8% increase recorded in the year leading to July.
The prices of alcoholic beverages in pubs and restaurants also experienced slower growth compared to the previous year, helping to reduce the annual inflation rate in the hospitality sector to 4.4% this August, a decrease from 4.9% in July. This decline marked the most considerable slowdown in annual inflation for restaurants and hotels in three years. In addition to this, the prices of alcohol and tobacco surged by 5.7% year-over-year in August 2024, albeit this was a reduction from the 7.2% gain documented in July 2024, illustrating the lowest annual rate since March 2023. On a monthly basis, consumer prices rose by 0.3%, which was in line with expectations, marking the first increase in six months following a 0.2% fall in the preceding month.
When excluding food, energy, alcohol, and tobacco from the calculation, the annual inflation rate in the UK escalated to 3.6% in August from 3.3% in July, outpacing the forecasted rate of 3.5%, primarily driven by a rebound in the services sector. Month-over-month, core consumer prices also met forecasts with a 0.4% rise. Meanwhile, annual goods inflation declined to -0.9% from -0.6%, while service prices surged 5.6%, up from 5.2% growth recorded in July.
In a report released on Tuesday, Daiwa Capital Markets projected that service inflation would remain below the monetary policy committee's estimated target of 5.8%. Daiwa anticipates that without a notable surprising downturn, the monetary policy committee will likely keep the bank interest rate steady during their upcoming meeting.
They noted, "If tomorrow's report delivers a significant downside surprise, we do not rule out a majority voting for a further 25bps cut this week.".