UK inflation falls to 9.9% but a higher peak is still to come
Somewhat surprisingly, UK inflation saw a small dip in August bringing the figure to 9.9%, down from 10.1% in July. The fall in the price of motor fuel was the primary reason for the change in inflation, while rising food costs had the largest upward impact during the month.
“In just a matter of weeks we will see utility bills soar ever higher as the new energy price cap comes in - albeit now capped at £2,500 following the introduction of Prime Minister Liz Truss’ energy plan, which is considerably lower than the previous prediction which sat at more than £3,000. With hope, the cap on energy bills may mean inflation is now close to peaking, though last month’s fall could likely be a fluke and we may see inflation climb further still in the months to come. While the energy plan may help, it comes at the cost of higher levels of borrowing and government spending which could encourage the Bank of England to hike rates even further than originally expected.
“All eyes will be keenly watching as the Bank of England makes its next move at its delayed Monetary Policy Committee meeting next week. Alongside the positive GDP figure released earlier this week, this latest inflation print being more positive than many had predicted means the Bank may opt for a slightly lower than anticipated 50 basis points hike. That being said, inflation remains extremely high, and the Bank may still feel it has no choice but to act, so a 75 basis points rate rise is certainly not off the cards.
“The cost-of-living crisis is now well embedded and is already having a major impact on people’s finances, yet worse is likely still to come. Given the crisis is not going to be short-lived, the government’s energy intervention is welcome, but questions are already being asked as to whether it goes far enough. There will be continued pressure on the Prime Minister as the winter draws in, and the Bank of England will face a tougher challenge still.