Skyrocketing Food Costs Boost UK Inflation Rate to 3.8% in August, Surpassing both US and Eurozone
The UK is currently grappling with rising inflation rates, as the public's long-term expectations for inflation have risen to their highest levels since 2019. This comes as inflation in the US stands at 2.9% in August, while in the euro zone it remains at 2%.
In August, British inflation remained steady at 3.8%, with the rate being the highest among major advanced economies. Inflation for services slowed slightly to 4.7% from 5% in July, while core UK inflation, excluding energy, food, and tobacco prices, fell to 3.6% from 3.8%.
Official data shows that Britain's economy grew just 0.2% in the three months to July, indicating a slowdown. The Bank of England expects inflation to stay above its 2% target until the spring of 2027.
The rise in food prices was particularly sharp, with food and non-alcoholic drinks prices 5.1% higher in August than a year earlier - the highest increase since January last year.
Despite the loosening of the labour market, basic wage growth remains high at 4.8%. This has led some economists, such as Paul Dales, chief UK economist at Capital Economics, to predict that the looser labour market will weaken wage growth and bring down UK inflation. Dales also believes that the upside inflation risks are too high for the Bank of England to cut interest rates tomorrow or in November.
The Bank of England is expected to hold its benchmark interest rate steady at 4% tomorrow. However, a majority of the economists surveyed expect the Bank of England to start reducing interest rates in the fourth quarter of this year, with further rate cuts anticipated early next year. Dales predicts that the Bank of England could lower rates from 4% now to 3% by the end of next year.
The rise in inflation and the slowing economy have led to concerns among policymakers. Finance minister Rachel Reeves has stated her determination to bring costs down and support people facing higher bills. James Smith, research director at the Resolution Foundation, suggested that the chancellor should ease cost of living pressures on struggling families at the budget in November.
Reeves is expected to raise taxes again when she delivers her next budget on November 26. The move is aimed at addressing the growing deficit and managing the country's debt levels. However, it will add to the cost of living pressures for many families.
In conclusion, the UK is facing a challenging period of high inflation and slowing economic growth. Policymakers are taking steps to address the situation, but it remains to be seen how effective these measures will be in bringing down inflation and supporting those most affected by the rising costs.
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