UK inflation held at 2.2% in August this year, despite a rise in airfares from the major airlines. The Office for National Statistics (ONS) reported that while prices rose in some sectors, this was matched by price drops in others. The cost of air travel may have risen (particularly to European destinations) but it was offset by lower prices at the petrol pumps, combined with falling costs at restaurants, hotels, and shop bought alcohol. A fall in the price of crude oil also meant that the cost of raw materials was down last month. House prices remained on trend at a pace of 2.2%, though renters saw a sharp increase.
While the price of air travel does usually rise in the summer months this year saw a 22% increase between July and August, the second largest increase since 2001. Hospitality also saw prices rise by 4.4%, slower than previous months. The sectors are considered to be primary indicators of how much spare income households have and the rise in prices there indicates that while inflation may be under control, some consumers are still feeling the pinch. Both industries are under pressure to absorb higher costs rather than pass them on to customers.
While the Government welcomed news of lower inflation, Darren Jones of the treasury acknowledged that ‘millions of families’ across the UK are still ‘struggling.’ Danni Hewson of AJ Bell took a more upbeat note claiming that a ‘corner has been turned’ in regard to inflation. ‘For the consumer, it is an improving picture, especially when it comes to filling up cars or kitchen cupboards. But while August marked the 17th consecutive month to see food inflation fall, she also acknowledged that the winter months may lead consumers to cut their spending on luxuries and focus on the basics, to ensure the heating can stay on.
Although the rate is slightly above the Bank of England’s (BOE) target of 2%, inflation is still significantly lower than at the peak of the cost of living crisis in 2022. Last month, the BOE was able to cut interest rates down to 5%, a rate it is expected to maintain when it announces the new base rate on Thursday. Inflation is expected to rise again later in the year, primarily due to the rise in energy prices coming in October, yet given this rise is not expected to be as dramatic as the one in 2022 and 2023, some are optimistic that the BOE may be able to drop interest rates again come November when things have settled.
