Hopes of an immediate interest rate cut by the Bank of England have all but evaporated after UK inflation held stubbornly above target in August.
The ONS reported inflation at 3.8%, unchanged from July and sitting at a 19-month high, well above the Bank’s 2% target. The reading has led markets to price in close to a zero chance of a rate cut when the Monetary Policy Committee meets on Thursday.
Money markets now indicate just a 36% probability of a rate reduction at one of the three remaining meetings this year. Traders are increasingly sceptical that the first cut may not arrive until April 2026.
Suren Thiru, economics director at the ICAEW, said the latest figures were “the final nail in the coffin for hopes of a rate cut tomorrow.” He added:
“This data confirms no respite yet for those households and businesses struggling with eye-watering financial pressures, as rising fuel costs helped keep inflation dishearteningly above the Bank of England’s 2% target.
August’s unchanged outturn could be followed by an unnerving upswing this month with skyrocketing business costs and food prices likely to see inflation breach the 4% mark in September, despite a weakening economy.”
The figures underscore the Bank’s dilemma: inflation remains uncomfortably high even as signs of economic slowdown intensify.
Inflation Above Target for 11th Month as Tories Slam Government’s Economic Record
Inflation has remained above the Bank of England’s 2% target for the 11th consecutive month, prompting sharp criticism from the opposition.
Shadow Chancellor Sir Mel Stride said the figures showed the Government was failing to get a grip on inflation, warning that rising prices continue to put pressure on families.
Sir Mel commented:
“This morning’s news that inflation remains well above target is deeply worrying for families. This is the 11th consecutive month inflation has exceeded the 2% target.
Labour’s decision to tax jobs and ramp up borrowing is pushing up costs and stoking inflation — making everyday essentials more expensive.”
The remarks come as markets push back expectations of an interest rate cut by the Bank of England, with inflation still running well above target despite signs of a slowing economy.
