British inflation unexpectedly held steady in August, keeping the chance of another Bank of England rate cut on track despite a big rise in raw material costs after June's vote to leave the European Union.

The annual rate of consumer price inflation was unchanged at 0.6 per cent in August, compared with economists’ forecast for it to increase to 0.7 per cent, the Office for National Statistics said on Tuesday.

Lower prices for clothing, hotels and wine offset an upward effect from fuel prices, food and airfares.

“Raw material costs have risen for the second month running, partly due to the falling value of the pound, though there is little sign of this feeding through to consumer prices yet,” ONS statistician Mike Prestwood said.

Last month the BoE said sterling’s 10 per cent fall against the dollar and the euro after the EU vote was likely to put upward pressure on prices for several years and cause inflation to overshoot its 2 per cent target.

But the central bank said most policymakers still expected to cut rates again later this year, although no further action is expected at this week’s rate-setting meeting. A purchasing managers’ survey earlier this month showed firms in the services sector were raising prices at the fastest rate since early 2014, while manufacturers reported the biggest increase in input costs in five years.

Producer price data from the ONS on Tuesday showed manufacturers’ input costs rose 7.6 per cent compared with a year earlier, the biggest jump since December 2011. But they raised the prices they charged by just 0.8 per cent, less than economists expected, though still the biggest increase since January 2014.

– Reuters