The CPI was recorded at 3.6% in the 12 months to June.
The ONS noted that the CPI including owner-occupiers’ housing costs (CPIH) increased by 4.1% in the 12 months to August, a slight drop from 4.2% in the 12 months to July.
The largest downward contribution to the monthly change in CPI and CPIH was air fares, similar to last month. Meanwhile, the ONS said the service industry – particularly hotels and restaurants – and motor fuels made large and partially offsetting upward contributions.
Base rate cut tomorrow is unlikely
The Bank of England’s Monetary Policy Committee (MPC) lowered the base rate from 4.25% to 4% at its last meeting in August. However, the latest figures showing that inflation remains substantially above the bank’s 2% target mean another cut at the MPC’s meeting tomorrow is highly unlikely.
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Peter Stimson, director of mortgages at MPowered Mortgages, said: “Britain’s inflationary problem has tied the hands of the Bank of England’s interest rate-setting committee and crushed any hope of the base rate coming down tomorrow.
“Much as the bank might wish to cut the base rate again to kick-start the stagnant economy, it cannot for fear of fanning the inflationary fire. Consumer prices are still rising at nearly double the bank’s 2% target and this heat has cauterised any chance of a September base rate cut.
“Despite today’s welcome fall in core CPI to 3.6%, a November base rate cut may be off the cards too.
“While the mortgage swaps market, which tracks interest rate expectations and is used by mortgage lenders to determine the fixed interest rates they offer to borrowers, still suggests there will be two more base rate cuts in total, the timing could now be pushed into next year.”
He continued: “Unfortunately for anyone planning to buy their first home or remortgage in coming months, these two cuts have already been priced into the interest rates offered by lenders. This means that even when they do come, the remaining base rate cuts are unlikely to make much of a dent on the mortgage interest rates offered to borrowers.
“The awkward truth is that mortgage interest rates may have fallen as far as they can. Some lenders have inched up their rates in recent weeks, and today’s blowout inflation number will do nothing to reverse that trend.”
