UK Inflation Rises to 3.1%, BoE Expected to Leave Rates Unchanged
The UK inflation rate rose to 3.1% year on year in August, its highest since March, driven by higher petrol costs and airfares amid the ongoing Iran conflict. This increase was in line with expectations, but service sector inflation remained unchanged at 3.4%, while core inflation also stayed steady at 2.6%. As a result, the pound was little changed following the data.
The Bank of England is expected to leave interest rates unchanged when it meets this week, despite containing price pressures due to a weak labor market. However, BoE Governor Andrew Bailey warned about new risks, including rising food prices from challenging domestic weather and the impact of Super El Niño. The UK drivers face the most expensive petrol costs since 2022.
The US dollar is pausing around a two-week high ahead of the Federal Reserve rate decision at 18:00 GMT, where the market is 91% convinced that the Fed will hike rates by 25 basis points. This move is almost fully priced in, and the dollar will only marginally benefit from such a move.