UK Inflation rate holds steady at 2.2% despite rise in air fares

Inflation held steady at 2.2% in the year to August, despite a jump in the cost of flights.

The rise in air fares, in particular to European destinations, was offset by lower fuel prices and prices in restaurants increasing more slowly, the Office for National Statistics (ONS) said.

The latest figure means overall inflation remains slightly above the Bank of England’s target of 2%.

But the rate is significantly lower than at the peak of the cost of living crisis in 2022.

The latest figures come as the Bank of England is expected to keep interest rates unchanged at 5% when it meets on Thursday.

Most economists think a cut is likely at the next meeting in November.

Grant Fitzner, chief economist at the ONS, said inflation “held steady” in August as “various price fluctuations offset each other”.

“The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year,” he added.

“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month, but rose at the same time last year.”

Raw material prices also fell last month, driven by lower crude oil prices.

The 22% rise in air fares was between July and August. Air fares usually rise in the summer, but this was the second largest rise in airfares since 2001, the ONS said.

Overall, services, which includes hospitality as well as transport, saw prices rise at 5.6%, up from 5.2% in the year to July.

However, motor fuel prices fell 3.4% over the year.

Falling costs at restaurants and hotels also meant prices in those sectors rose at 4.4% in the year to August, a slowdown from previous months.

Darren Jones, Chief Secretary to the Treasury said while lower inflation was welcome, the government understood “that millions of families across Britain are struggling”.

“Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago,” he added.

The Bank of England expects inflation to tick higher again in the second half of this year, with household energy bills rising again in October.

But prices are not forecast to rise as steeply as they did in 2022 and 2023, which prompted the Bank to raise interest rates to 5.25%

The Bank cut interest rates for the first time since the crisis at the start of August, after inflation came down to its target of 2% in May and June, but is expected to hold them on Thursday.

“Today’s data are unlikely to unlock another rate cut by the Bank of England tomorrow,” Yael  Selfin, chief economist at KPMG UK, said.

“While we expect the Bank of England to look beyond the anticipated higher headline inflation, services inflation remains elevated.”