The UK inflation rate remains steady and although it remains higher than the Bank of England’s ideal rate, it is still a marked improvement on the excesses of recent years.
Data from the Office of National Statistics (ONS) shows an August consumer inflation rate of 2.2%, 0.2% more than the Bank of England’s target of 2%. The rate first rose from 2% to 2.2% in early August, shortly after Labour formed its first government in 13 years.
Though this is not the biggest PR victory for the party, inflation remains far below some of the lofty heights it reached earlier in the 2020s, peaking at 7.1% in 2023, the highest since 1992.
Inflation will continue to weigh on consumers’ pockets, though nowhere near to the extent it did during the above mentioned periods. Regardless, some impact on spending and payment volumes could be possible as consumers seek to budget and manage finances against high prices.
HM Treasury noted that prices are 24% higher than in January 2020 but total real earnings are less than 2% higher than 16 years prior. Labour’s financial policymakers explained that “this means people aren’t earning a tenner more a week than they were in 2006”.
“Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago,” said Darren Jones, Chief Secretary to the Treasury.
“So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling, which is why we are determined to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off.”
The inflation rate is often seen, alongside the obvious statistics of GDP growth, as a benchmark by which a government’s economic success can be measured. The 2.2% rate remaining steady under Labour, albeit a slight increase on the target rate of 2%, will likely come as a relief to Keir Starmer’s government.
It will of course, as mentioned above, also come as a relief to consumers, but also to the businesses that rely on these consumers for custom, and which also feel the impact of inflation on operating costs.
Lastly, financial services and fintech can look at these figures as a positive. The Labour government, both before and after its July election victory, often reiterated that the UK’s financial service sector is one of the country’s biggest success stories.
The party came into power with a manifesto that included several policies around financial services. This included continuing to develop and roll out Open Banking, and Starmer and his Chancellor of the Exchequer, Rachel Reeves, have already initiated their first piece of finance-oriented legislation, the Smart Data Bill.
Consumers have one more important financial news story to keep an eye out for this week, when the Bank of England will meet to decide whether to hold, increase or decrease interest rates. Most economists expect the central bank to hold, with a decrease expected in November.
