Inflation goes up to 3.1% in August
The Consumer Prices Index (CPI) underwent a rise to 3.1% in August, according to the Office for National Statistics (ONS).
This compares to rises of 2.9% in July and 2.6% in June.
On a monthly basis, the CPI increased by 0.5% in August versus a rise of 0.3% in August last year.
Core CPI – which excludes energy, food, alcohol and tobacco – rose by 2.6% in the 12 months to August, marking no change from the 12 months to July.
The CPI including owner-occupiers’ housing costs (CPIH) increased by 3.3% in the year to August, up from July’s 3.1%.
Meanwhile, the ONS found that core CPIH, which is CPIH excluding energy, food, alcohol and tobacco, was also up. It increased by 2.9% in the year to August, the same as in the year to July.
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Implications for base rate
The Bank of England Monetary Policy Committee’s (MPC’s) decision on the base rate will be revealed tomorrow, and today’s figures from the ONS may mean the committee has no option but to raise rates. The base rate was held at 3.75% at the MPC’s last meeting in July – but the decision was upheld by a majority of 6:3, with three members voting for an increase.
Major lenders have made a raft of rate increases in recent weeks, potentially anticipating a rise in interest rates.
Emma Hollingworth, chief distribution officer at LSL Financial Services, commented: “While the Bank of England has held its nerve on interest rates since the US-Iran conflict flared up again, today’s inflation data has significantly raised the odds that it will hike borrowing costs this year.
“The European Central Bank increased rates last week, albeit from a lower base, and markets expect the US Federal Reserve to follow suit later today. That piles the pressure on the Bank’s Monetary Policy Committee (MPC) to act sooner rather than later.
“We still think a hold is the most likely outcome on Thursday, but the decision will be close and the MPC could easily vote to raise rates if it feels the need to head off further price pressures.
“Whatever the outcome, borrowers are already feeling the squeeze. Fears of renewed inflation mean markets are pricing in as many as four rate rises over the next year, which has sent swap rates soaring. That has triggered a wave of repricing as lenders have raced to protect their margins.
“The outlook for borrowers remains highly uncertain and it’s in moments like these that advisers prove their worth. Brokers should reach out now to clients nearing the end of their deal to help them navigate what are once again increasingly choppy waters.”
