UK consumer price inflation held steady at 3.8% year-on-year in August, unchanged from July and nearly double the Bank of England’s 2% target, suggesting policymakers are likely to keep rates unchanged at Thursday’s meeting.
On a monthly basis, CPI rose 0.3%, up from 0.1% in July. Core inflation eased slightly to 3.6% from 3.8%. Economists expect inflation to peak at 4% in September before gradually declining towards target by mid-2027, although household expectations remain elevated.
The Bank of England’s latest survey showed one-year inflation expectations rising to 3.6% and five-year expectations climbing to 3.8%. Food inflation fell to 4.9% in early September but is still projected to end the year near 6%, above the BoE’s 5.5% forecast.
The BoE cut its base rate to 4.0% in August, the lowest since March 2023. However, given the persistence of inflationary pressures and the fact that four members opposed the last rate cut, a consensus for further easing this week appears unlikely.
