Interest rates have been kept high to squeeze the economy and slow down price rises – reducing inflation.

In a long-awaited move, the Bank of England cut the base rate from 5.25% to 5.0% last month- and is meeting again tomorrow.

This morning’s inflation data, however, has furthered dampened hopes of another cut tomorrow, analysts say. 

The markets now put the chance of a 0.25 percentage point cut at 26% – it was 37% before the release of inflation data an hour ago.

Capital Economics analysts say the next cut is expected to take place in November. 

“The good news on inflation in recent months did not last for long. As we had expected, food and fuel price inflation exerted some downward pressure on CPI inflation,” Ruth Gregory, deputy chief UK economist, says.

“But this was offset by the upward effects from rising furniture/household equipment inflation, recreation/culture inflation and a surprisingly large rise in airfares inflation from -10.1% in July to +11.9% in August. 

“As a result, core inflation crept back up from 3.3% to 3.6%. And after falling in July to its lowest rate in two years of 5.2%, services inflation rebounded to 5.6% in August.”

Two other measures were below predictions: CPI was below the 2.4% first predicted in August and services inflation was 5.6%, below the Bank’s prediction of 5.8% (some of which was due to the rise in airfares, which are volatile in August anyway). 

“But there’s no denying that services inflation is still too high for the Bank of England’s liking. And CPI inflation will almost certainly rise in the coming months, perhaps to 2.9% in November due to higher utility prices before it falls back towards 2.0% in mid-2025. So the Bank may start to worry about the trajectory of CPI inflation and services inflation,” Ms Gregory says.

“Overall, a pause on interest rate cuts was already expected tomorrow and today’s release cements that view.”