The UK is treading a fine line on inflation

Inflation in the UK appears perfectly placed to spur productivity and wage growth, but two factors pose upside risks that could force the Bank of England to raise rates prematurely.

Inflation in the United Kingdom rose by 0.4 per cent in August in line with expectations to be 1.5 per cent higher over the year. Annual inflation has eased somewhat over the past couple of months, which if maintained will allow the Bank of England to delay a decision on rates until it is happier with the combination of wage and productivity growth.

Inflation was driven by clothing and footwear and transport prices, which between them accounted for three-quarters of inflation during August. This more than offset a modest decline in food prices, while petrol prices eased further.

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