In the United Kingdom, the inflation rate remained stable at 2.2% in August, as reported by official figures from the Office of National Statistics. Factors such as higher air fares were balanced out by lower fuel costs and reduced expenses in restaurants and hotels. This steady inflation rate is just above the Bank of England’s target of 2%.
Recently, the Bank of England made its first interest rate cut since the start of the pandemic, decreasing the main interest rate by a quarter-point to 5%. This decision was influenced by a global trend of central banks raising borrowing costs from near zero during the pandemic due to factors like supply chain disruptions and the impact of Russia’s invasion of Ukraine, which escalated energy expenses.
The majority of economists anticipate that the Bank of England will maintain the current borrowing costs after its upcoming policy meeting on Thursday. There is concern within the Monetary Policy Committee about inflation in the essential services sector, reflected in the rise of service sector inflation to 5.6% in August from 5.2% in July, particularly due to increased air fares for European routes.
Looking ahead, experts predict that the central bank may consider another rate cut in November, following the government’s budget announcement on October 30. The new Labour government is facing a substantial deficit of 22 billion pounds ($29 billion) in public finances, which could prompt tax increases and spending cuts, impacting the British economy’s short-term prospects and exerting downward pressure on inflation.
Suren Thiru, the economics director at the Institute of Chartered Accountants in England and Wales, remarks that an interest rate reduction on Thursday is improbable, as the Monetary Policy Committee is likely to wait for the effects of the upcoming budget before making any further policy adjustments. Globally, central banks are responding to decreased inflation rates by implementing interest rate cuts. The U.S. Federal Reserve is anticipated to lower rates for the first time in four years on Wednesday.
