L’argent, le moteur des marchés
UK underlying inflation has slowed
17 septembre 2025 par Simon Ward
A measure of UK annual core CPI inflation excluding direct policy effects eased to 3.1% in August, 0.5 pp lower than a year earlier.
Published core inflation (i.e. excluding food, energy, alcohol and tobacco) of 3.6% was unchanged from August 2024. The wedge between the published and adjusted measures reflects the imposition of VAT on school fees, a bumper rise in water / sewerage changes and expensive changes to vehicle excise duty – see chart 1.
Chart 1
The adjustment takes account only of direct policy effects, not indirect upward pressure from changes that have loaded additional costs on firms, including the national insurance raid and a double-inflation rise in the minimum wage. The February Monetary Policy Report suggested that the NI changes alone would push up annual core inflation by about 0.25 pp by now.
How should monetary policy respond to above-target inflation driven largely by government-determined prices / costs?
The monetarist recommendation, as always, is that policy-makers should aim for stable money growth at a rate consistent with trend economic growth and the inflation objective. Such an approach avoids accommodating cost-push pressures while minimising any loss of output.
The suggested range for UK broad money growth at present is 4-5% pa. Current annual growth, as measured by non-financial M4, is 3.7%. So the MPC should lower rates / slow QT despite policy-driven inflation.
