UK inflation holds steady at 2.2% in August

The Office for National Statistics (ONS) has today revealed that UK inflation remained unchanged at 2.2% in August, mirroring July’s figure. This marks a steady continuation in price growth just a day before the Bank of England (BoE) makes its decision on whether to adjust interest rates, currently set at 5% following a rate cut on August 1st.

A key development in the August inflation figures was the rise in the services sector, considered a primary indicator of domestic inflation. The sector saw price growth accelerate to 5.6%, up from 5.2% in July.

This increase was driven by a significant rise in airfares, particularly on European routes, with prices soaring by 22.2% between July and August. According to the ONS, this represents the second-largest monthly spike in airfares since the ONS began collecting price data in 2001.

While the rise in service costs added to inflationary pressures, downward contributions came from declining motor fuel prices, as well as lower costs in the restaurants and hotels sector, helping to keep the headline inflation rate steady.

The Bank of England had previously forecast inflation would rise to 2.4% in August and further increase to around 2.75% by the year’s end. With services inflation on the rise, the BoE’s Monetary Policy Committee (MPC) faces a critical decision as it assesses whether further rate adjustments are needed to manage inflationary pressures. The decision is expected on Thursday.

Mike Randall, CEO of Simply Asset Finance, noted: “Steady inflation figures will certainly settle some nerves.

“But it’s essential that the government avoids complacency, recognising the macro-economic headwinds it must still navigate. The importance of the upcoming budget cannot be overstated.

“Bolstering growth, supporting ambition, and tackling productivity, across businesses of all sizes, need to be front and centre of policy decision-making. Getting this right will give the UK the best chance of navigating future volatility, and the government the best chance of having the much-needed resources needed to invest in services.”

Neil Rudge, Chief Banking Officer, Commercial at Shawbrook, said: “The pause in price growth is welcome news for businesses.

“It boosts the likelihood of further base rate cuts, whether that happens tomorrow or later this year. It also reaffirms that last month’s rate cut—the first since 2021—was the right move.

“At Shawbrook, we’re seeing a consistent and steady flow of funding applications from SMEs, indicating that businesses are feeling optimistic and ready to act on growth plans that may have been shelved. With another rate cut potentially on the horizon, business leaders are beginning to focus on their next priority—whether that’s an acquisition, expansion, or an exit strategy.”