Lower than expected inflation supports case to hold interest rates at 5.25%

Commenting on today’s ONS data that showed the annual rate of CPI inflation was 6.7% in August, down slightly from 6.8% in July, Kitty Ussher, Chief Economist at the Institute of Directors, said:

 

“This slight fall in the headline rate of inflation is better than was expected given the increased cost of petrol in August which had led many to think it would be higher in the short-term before the expected big drop in October.

 

“In fact, although there was strong upward pressure from petrol prices, this was offset by falls in many categories of food, as well as in restaurants, hotels and airfares. It is particularly encouraging to see lower core inflation and services inflation, both of which have been stubbornly high in recent months.

 

“Overall this supports our narrative that the interest rate rises we have seen so far are doing their job and should be given more time to work before the Bank of England considers whether the base rate needs to rise further.”