BUSINESS LIVE: Inflation steady at 2.2%; L&G to sell construction firm CALA; M&C Saatchi profits soar

Thomas Pugh, economist at RSM UK:

‘The pick-up in services inflation in August makes a rate cut tomorrow even less likely, but this is just a blip on an otherwise downward trajectory. Services inflation should continue to slow over the rest of the year, leaving the door open for one or even two more rate cuts towards the end of the year.

‘The good news is that accommodation inflation fell back from 3.9% to 3.7% and restaurant inflation fell from 5.5% to 4.9%. Price pressures in this sector had been very persistent until July, so the consecutive falls in inflation suggest that price pressures are actually easing.

‘Elsewhere, almost all goods prices continued to decline, with overall goods inflation falling 0.9%, helping to offset the impact of higher services inflation.

“Overall, we are not concerned about the pick-up in service sector inflation, which was boosted by inconsistent airfares. Most other sectors show price pressures continuing to ease. While there is little chance of the Monetary Policy Committee cutting interest rates tomorrow, we think the chances of two cuts by year-end are increasing.”

Matthew Chapman, Associate Partner at McKinsey & Company:

‘Keeping inflation below 2% is difficult. While goods inflation has been in negative territory since April, high levels of services inflation have kept headline CPI above the 2% target.

‘Price increases for everyday essentials have remained slow. While price increases for food and non-alcoholic beverages have slowed to 1.3%, the cost of living remains a primary concern for consumers.

‘Higher inflation rates in services (5.6%) – including hotels, holiday packages and airfares – have contributed to the headline CPI stagnating at 2.2%. However, consumers are showing lower spending intentions in these categories in the next 3 months, after the summer, which could weigh on services inflation in the coming months.

“Consumer confidence is rising, across all age and income groups. If inflation continues its downward trajectory, consumers could experience a moderate increase in purchasing power, which could then translate into stable spending.”

Consumer price inflation was 2.2 percent in August, unchanged from the previous month and in line with economists’ forecasts, new data from the Office for National Statistics shows.

The Bank of England, which had forecast the CPI would rise to 2.4 percent last month before rising to almost 2.8 percent by the end of the year, will make its final decision on the direction of interest rates on Thursday.