UK Inflation Holds Steady at 3.1%, Markets Expect No Rate Hikes

UK inflation held steady at 3.1% year on year in the latest data, driven by higher energy and fuel prices. However, core CPI and services CPI remained unchanged, while food CPI did not meet expectations.

The labour market also showed signs of cooling, with rising slack indicating that second-round effects from inflation remain contained.

As a result, markets have scaled back expectations for the Bank of England to raise interest rates at its upcoming meeting. Economists' estimates suggest that the neutral rate is around 50 basis points below the current policy rate of 3.75%.