UK inflation steady at 2.2% ahead of Bank of England's next rate decision

Inflation in the UK held steady at an annual rate of 2.2 per cent in August, with higher air fares offset by lower fuel costs and restaurant and hotel bills, official figures showed Wednesday.

The latest reading from the Office of National Statistics means inflation remains just above the Bank of England's target of 2 per cent.

Last month, the central bank reduced its main interest rate by a quarter-point to 5 per cent, the first cut since the onset of the pandemic.

Central banks around the world dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to shoot up, first as a result of supply chain issues built up during the pandemic and then because of Russia's full-scale invasion of Ukraine which pushed up energy costs.

Most economists think the bank will opt to keep borrowing costs unchanged after its latest policy meeting on Thursday. However, they think that the bank will most likely cut again in November, in the wake of the government's budget on October 30.

The new Labour government has said that it needs to plug a 22 billion-pound (USD 29 billion) hole in the public finances and has indicated that it may have to raise taxes and lower spending, which would likely weigh on the near-term outlook for the British economy and put downward pressure on inflation.

“An interest rate cut on Thursday is looking unlikely with the majority of the Monetary Policy Committee likely to want to assess the impact of next month's budget before deciding when to loosen policy again," said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.