The UK Consumer Price Index (CPI) rose 2.2% in August for the second month running, taking it slightly above the Bank of England’s (BoE) 2% inflation target.
While this is a slight uptick after briefly returning to 2% in May and June, it is a far cry from the 11.1% peak it hit in October 2022 – a high it has gradually fallen from over the past two years.
But Tom Stevenson, investment director at Fidelity International, warned that investors should not get their hopes up for an interest rate cut by the BoE tomorrow. This month’s inflation figures have only dealt “another headache” for the Bank as it grapples with more conflicting data.
The headline inflation rate may fuel some optimism, but Core CPI – which excluding energy, food, alcohol and tobacco – rose from 3.3% to 3.6% in August, and CPI services rose to an even steeper 5.6% throughout the month, up from 5.2% in July.
See also: Interest rates: Tough decisions ahead for central banks
Abrdn’s chief commercial and strategy officer Jonny Black agreed that the BoE still has its hands full when it comes to getting inflation fully under control.
“Considering this a ‘job done’ might be premature. These are still volatile conditions,” he said. “Advisers have a key role to play in helping clients reflect on the experience of the past few years and stressing why inflation mitigation strategies are so important in their planning, and to re-assure them that their plans have these in place.”
And with the the new Labour government pushing for higher growth and productivity, inflationary pressures are only likely to heighten over the coming months, according to Rachel Winter, partner at Killik and Co.
“This could put a September interest rate cut out of reach, and it also makes the case for future rate cuts more difficult this side of Christmas,” she added.
“For investors, as uncertainty around future rates lingers, the importance of maintaining a well-diversified portfolio across multiple asset classes remains. Short-term volatility is a concern as we approach Labour’s first Budget, and diversification will help to protect against sector-specific shocks.”
