Inflation held steady in August paving the way for another cut in interest rates this year although the Bank of England may sit tight this week amid concern about rises in  the prices of some services.

The headline rate of Consumer Price Inflation was 2.2% for the second month running in August according to figures from the Office for National Statistics, which were in line with market expectations.

The numbers provide further evidence that inflationary pressures have eased significantly after the Bank of England raised interest rates repeatedly in response to the surge in prices that started amid the recovery from the pandemic.

The Bank’s Monetary Policy Committee decided it was safe to cut rates by 0.25%, from a 16-year high of 5.25%, at its August meeting.

Economists said it was unlikely that MPC members would sanction a further cut at their meeting this week, after an increase in the rate of service sector inflation in August offset the benefit of falls in goods prices.

The outcome of the meeting will be announced on Thursday.

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“Services inflation arguably remains too high to warrant another cut,” said Russ Mould at the AJ Bell investment platform business. He said traders saw a 73.9% probability of no cut at this week’s meeting.

However, Thomas Pugh at accountancy firm RSM UK said the rebound in services inflation in August was just a bump in an otherwise downward path.

“Services inflation should continue to slow over the rest of the year, leaving the door wide open for one, or even two, more cuts towards the end of the year,” said Mr Pugh.

He added: “The rebound in services inflation was primarily driven by a jump in airfare inflation … but this has much more to do with the date the ONS collects prices than what’s happening with underlying price pressures.

“There was also a big jump in cultural inflation from 6% to 7.8%, which probably reflects base effects and the impact of the Taylor Swift Eras tour.”

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Matt Swannell, chief economic adviser to the EY Item Club also thought the uptick in services inflation should prove temporary given it was largely due to base effects.

Mr Swannell predicted that Consumer Price Inflation could fall below the Bank of England’s 2% target this month.

But he added: “In the minutes of its August meeting, the MPC sent a clear message that back-to-back rate cuts were unlikely unless the subsequent data was much softer than anticipated.”

The price of goods fell by 0.9% in the year to August, compared with 0.6% in the year to July. The EY Item Club highlighted the impact of the fall in petrol prices following the drop in global demand for crude oil and a continued softening in food price inflation.

George Lagarias, chief economist at Forvis Mazars accountants noted: “Developed world economies have caught a lucky break from China’s economic slowdown which is deflating goods, at a time when their service costs remain too high for comfort.”

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Services sector inflation rose to 5.9% in the 12 months to August 2024, from 5.7% in July

The ONS noted that Consumer Price Inflation peaked at 11.1% in October 2022.