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September 14, 2010    

UK inflation expected to ease slightly in August

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by Kay Murchie

The Office for National Statistics (ONS) is scheduled to announce the UK inflation rate this morning, with analysts expecting the annual rate to be around 2.9% - representing the ninth consecutive month that it has been above the Bank of England’s target of 2%.

Last month, the ONS reported Consumer Price Inflation (CPI) eased to 3.1% in July – down from 3.2% in June.

Inflation has remained stubbornly high over recent months and at the last three interest rate meetings, policymaker Andrew Sentance voted for rates to be lifted from their current historic low of 0.5% – where they have been since March 2009.

The CPI inflation rate is a benchmark for the Bank of England’s Monetary Policy Committee (MPC) but the Bank has already noted that inflation has remained more persistent than it had expected.

In its previous inflation report in May, the Bank said inflation would remain above the 2% target for the remainder of 2010.

However, the recent decision to hike VAT to 20% next year by the coalition Government will undoubtedly keep inflation higher, said the Bank.

In the meantime, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, is also expected to fall from the 4.8% reported in July.

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