The latest UK inflation data, released on Wednesday, paints a mixed picture. While the headline inflation rate stabilised at 2.2% in August, confirming analysts’ forecasts, a closer look reveals important nuances.
Indeed, so-called core inflation, which excludes the most volatile elements such as energy and food prices, continues to accelerate, reaching 3.6% over one year. This persistent rise in underlying inflation suggests that inflationary pressures could prove more persistent than the headline inflation figure suggests.
This presents the Bank of England (BoE) with a complex dilemma. As it makes a crucial interest rate decision on Thursday, current data suggests it is cautious. While a rate hike could help curb inflation, it could also weigh on an already fragile economy.
Economists are now questioning the sustainability of this apparent stability in inflation. Uncertainties related to the war in Ukraine, tensions in global supply chains and changes in the monetary policies of major central banks could disrupt this precarious balance.
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