UK Inflation Rate Remains Above 2% Target, Leaving Room for Further Interest Rate Cuts

The UK inflation ‍rate remained slightly above the⁢ Bank of England’s 2% ‌target in August, leaving room for the Bank of England to‌ further cut interest rates later this year. Data ⁢released by ⁤the UK National Statistics Office​ on Wednesday showed that the UK CPI rose 2.2% year-on-year in ⁢August, the same as the previous value and lower than the Bank of England’s expectations.

The data is likely to keep​ the Bank of England⁤ on ⁢track to further ease monetary⁢ policy later this ‌year. The ⁢Bank of England cut interest ​rates by 25 basis points on August 1, the first ‌rate cut ‍since early 2020,​ citing easing underlying inflation. The Bank of England also released ⁤a ​signal​ of further cautious rate cuts in⁤ the future.

The CPI for the services sector, a key indicator closely watched by​ the⁢ Bank of England, rose​ 5.6% year-on-year in August, higher than‍ the market’s general expectation of 5.5% and the previous value of 5.2%. However, the market generally‌ expects that this‍ rebound will be temporary.

The Bank ⁤of ⁣England will announce its September interest rate decision on Thursday. While the Bank of England is expected to⁤ keep its base rate unchanged at 5%, market expectations for further‍ easing have been rising. Traders currently expect​ the Bank ⁤of England to ‌cut interest rates in both⁢ November ‌and December, and five more times in 2025.

Fund ⁢managers ‌at Abrdn⁣ Investment Management Ltd., ⁢Aviva Investors and Allianz Global Investors ‍are betting that the Bank of England’s‌ tentative rate cuts won’t‍ last long⁢ amid slowing growth and a budget for higher taxes. Strategists at ⁢Goldman Sachs, HSBC and UBS agree, arguing that⁢ policymakers will ‌soon be forced to step up ⁣their response as Britain’s economic‍ growth continues to weaken.