The Bank of England could cut interest rates next month, after a small rise in the cost of living for August.
This morning’s data showed that the cost of living, the Consumer Price Index(CPI), was 2.2% higher in July, compared with a rise of just 2% in June, according to official figures from the Office for National Statistics (ONS) – below City forecasts of 2.3%.
The rate of inflation last rose in December 2023 when the CPI went up from 3.9% to 4%.
The ONS said the main reason for the tick up in the inflation rate was that gas and electricity prices did not fall as steeply as they had in same month last year.
And the money markets now indicate that there’s a 45% chance that Bank Rate will be cut to 4.75% next month, from its current level of 5%, and a 55% chance that borrowing costs remain unchanged.
Before this morning’s announcement, there was only a 36% chance that there would be a cut in September, according to City pricing.
Traders reportedly expect there to be two rate cuts seen in the UK by the end of this year – previously, only one cut was fully ‘priced in’, with a second seen as likely.
Aaron Hussein, global market strategist at J.P. Morgan AssetManagement told the Guardian that inflation appeared to be going the right way, but people should not get too ahead of themselves.
He said: “Today’s inflation print will reassure members of the committee that voted for a rate cut last month that they may finally be taming the inflation beast. While headline inflation ticked up as favourable base effects fade, services inflation – a crucial measure of domestically generated inflationary pressure – moderated. This coupled with moderating wage growth, suggests that inflation may finally be heading in the right direction.’
“However, with economic growth on a cyclical upswing since the start of the and the labour market remaining resilient, their remains a risk that cutting too quickly will fan the inflation flames. We therefore think it’s unlikely that the Bank will follow up its August cut with a cut in September. Absent any material shock to growth, this cutting cycle is likely to be gradual with a quarterly cadence most likely.”
Here is what it all means.
The Bank of England
PA Wire
When is the next interest rate announcement?
The next CPI release date is expected on September 18 which will be the data covering August.
The Bank of England then have a team to look at the evidence and make a decision about every six weeks. They are known as the Monetary Policy Committee. Every three months, they give detailed reasons behind their decisions in a Monetary Policy Report. The MPC will announce its next decision on interest rates on Thursday September 19.
Have interest rates increased?
In June, interest rates remained at 5.25 per cent for the seventh meeting in a row. The committee makes a decision about interest rates every six weeks and publishes the background to it.
When is the next interest rates announcement?
The MPC meets eight times a year to discuss whether it should raise or cut interest rates, or keep them the same.
The remaining two meetings after September will take place on the following dates:
