UK inflation fell to 6.7% in August, leading many economists to predict that the Bank of England may not raise interest rates this week.
According to the Office for National Statistics, the consumer prices index (CPI) rate of inflation dropped for the six month in a row, from a 6.8% rate in July. This was a surprise to some City observers who had predicted a slight rise.
The ONS said that prices for hotels and air travel contributed to a drop in the CPI rate, although petrol and diesel costs continued to rise.
The government has pledged to get the rate of inflation down to 5% by the end of this year, with a longer term target of 2%. CPI inflation was more than 11% in October 2022.
The continued drop means it is more likely that the Bank of England will not increase interest rates tomorrow.
Chancellor Jeremy Hunt said inflation was “still too high” but claimed that the government’s plans to bring it down were working.
Economy and inflation
However, the TUC pointed out that real-terms pay growth has remained flat across the year when price rises are taken into account, and continues to fall by 1.1% in the public sector.
The union body argues that real-terms pay is £18 per week lower than it was at the start of 2008, apart from in the finance sector, where pay has gone up by 2.8%.
Paul Nowak, general secretary of the TUC, said a halt to interest rate raises would be “long overdue”.
“Pushing interest rates so high that the economy is driven into recession will only make the current crisis worse, costing people their jobs and their homes,” he said.
Darren Jones, Labour’s shadow chief secretary to the Treasury, told BBC Breakfast that the 0.1% fall in CPI inflation would mean little to those struggling with the cost of living.
He said this “will mean very little to families across the country that can’t afford to pay their bills”.
“It is not delivering on Rishi Sunak’s promise to this country that he was going to half inflation and reduce the cost of living for families,” he added.
According to pay analysts at XpertHR, median pay awards also fell for a second consecutive quarter.
It found that the median basic pay award for the three months to the end of August was 5%, falling 0.4 percentage points from the previous quarter.
Public sector pay awards increased, however, up to 6.4% over the same period – the highest level since March 1992. This was driven by a series of pay awards in key sectors such as doctors, dentists and the armed forces.
Sheila Attwood, XpertHR senior content manager, data and HR insights, said: “The past year for those involved in reward has been characterised by contending with historically high inflation and a tight labour market, while employees have been battling with the effects of the high cost of living.
“The impact of this has been reflected by pay awards reaching levels not seen for 30 years.”
Attwood believes that pay awards may have reached a “peak”, however, and that the rest of the year could see settlements and increases begin to fall.
“Although the latest data from the ONS indicates significant pay growth over the past three months, the level of growth was the same as in the previous quarter,” she added.
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
Compensation and benefits opportunities on Personnel Today
Browse more compensation and benefits jobs
