UK inflation remains unchanged in August but elevated services inflation warns

Inflation in Britain was unchanged at 2.2% y/y in August and in line with expectations, while monthly inflation increased by 0.3%, matching forecasts, after 0.2% drop in July.

Core inflation, which excludes volatile energy, food and tobacco components, accelerated to 3.6% year on year from 3.3% increase previous month, but increase was in line with expectations.

The most significant was rise in services inflation, an indicator of domestic price pressures, closely watched by the Bank of England, which rose to 5.6% in August from 5.2% increase in July and overshot forecasts for 5.5% increase.

Elevated services inflation warns that the central bank may keep interest rates on hold at 5.0% in its tomorrow’s policy meeting, after it delivered a rate cut in August meeting, which lifted sterling in immediate reaction to data.

Britain’s government remains committed to speed up economic growth and commented current level of inflation as manageable but pointed to still high prices.