LONDON (Reuters) – British inflation held at 3.8% in August, remaining the highest of any major advanced economy, according to official data that underscores why investors believe the Bank of England is unlikely to cut interest rates again this year.
High inflation is a problem for Britain’s government as well as the BoE. Finance minister Rachel Reeves said last week that the government should focus on helping the central bank to lower inflation as well as boosting economic growth.
Inflation for consumer services – closely watched as a gauge of domestic price pressures by the BoE – slowed to 4.7% from 5.0% in August, the Office for National Statistics said on Wednesday.
Core inflation, which excludes energy, food and tobacco prices, fell to 3.6% from 3.8%.
Most economists polled by Reuters and the BoE had forecast that the headline measure of inflation would hold at 3.8%.
The BoE is expected to hold its benchmark interest rate steady at 4% on Thursday after lowering it by 25 basis points in August. The Monetary Policy Committee’s 5-4 split vote last month suggested the central bank might slow its already gradual pace of rate cuts due to persistently above-target inflation.
British inflation is higher than in the United States where it increased to 2.9% in August and in the euro zone where it rose to 2.1%, just above the European Central Bank’s 2% target.
The BoE has forecast that British inflation will reach 4% in September and stay above its 2% target until the spring of 2027.
While Britain’s labour market has loosened, it continues to put upward pressure on prices. British wage growth slowed in the latest data, but at 4.8% for basic pay it remains too high for the BoE to take much comfort from the inflation outlook.
However, official data last week painted a downbeat picture of Britain’s economy at the start of the second half of 2025, recording just 0.2% growth in the three months to July.
Inflation also continues to be a concern for consumers despite a slowdown in the pace of price growth from above 11% in 2022. Last month, longer-term inflation expectations among the public rose to the highest since 2019.
(Writing by Suban Abdulla and William Schomberg; editing by Sarah Young)
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