Market News

Summary

• UK inflation remains at 3.8%, highest among major economies
• Food prices jump, driving public inflation expectations
• BoE likely to maintain rates due to high inflation risks

LONDON, Sept 17 (Reuters) - British inflation in August held at 3.8%, official data showed on Wednesday, the highest among major advanced economies and reinforcing expectations that the Bank of England will not cut interest rates until next year.
The rise in food prices - which the BoE sees as key for shaping public inflation expectations - was the sharpest since January last year and offset a drop in airline fares, the Office for National Statistics said.

James Smith, research director at the Resolution Foundation think tank, said headline inflation remained uncomfortably high and households would feel the impact of higher food prices.

"The chancellor should look to ease the cost of living pressures on struggling families at the budget in November," Smith said.
Food and non-alcoholic drinks prices were 5.1% higher in August than a year earlier, after a 4.9% rise in July.
Last month, longer-term inflation expectations among the public rose to the highest since 2019.

'HIGHER BILLS'

Finance minister Rachel Reeves said she was determined to "bring costs down and support people who are facing higher bills."
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Inflation for services - closely watched by the BoE - slowed to 4.7% from 5.0% in July.

Many firms have said they would raise prices after an increase in their social security contributions in Reeves' first budget last October. She is expected to raise taxes again when she delivers her next budget on November 26.

FILE PHOTO: Prices of food are displayed at the Borough Market as the UK inflation rates fall by less than expected in London, Britain May 22, 2024. REUTERS/Maja Smiejkowska/File Photo/File Photo Purchase Licensing Rights

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Core inflation, which excludes energy, food and tobacco prices, fell to 3.6% from 3.8%.
Most economists polled by Reuters and the BoE had forecast that the headline measure of inflation would hold at 3.8%.

British inflation is higher than in the United States, where it increased to 2.9% in August and in the euro zone, where it rose to 2.1%, just above the European Central Bank's 2% target.
The BoE has forecast that British inflation will reach 4% in September and stay above its 2% target until the spring of 2027.