Little news in today's public sector finances data: borrowing was in line with @OBR_UK forecast with cash receipts v.slightly above forecast. This will be a relief to @RachelReevesMP as it suggests this is one area where the data are not headed in the wrong direction.

The PMIs do not paint a picture of good news across the economy, though: the service sector is in much better shape than manufacturing or construction both of which are in recession territory in the latest readings.

UK PMIs at this level are consistent with annual GDP growth of (very roughly) 1.5% - so not world beating by any means but not bad given recent history and ongoing trade uncertainty.

Quick word on today's encouraging UK flash PMIs. This is THE key short-term economic indicator and the big issue for Aug was whether the recovery from April & May doldrums wd continue. In the event, the composite PMI pickedup slightly to its highest level in a year in August.

RT @haskelecon: @JamesSmithRF Excellent thread James and @LalithaTry. V much agree, IMHO very hard to see more than one rate cut this year.

Huge thanks to @LalithaTry for help with this thread 👏👏👏.

Overall, then, despite the rise in inflation being driven by erratic airfares, this is a disappointing inflation release. Lots to worry about for families, the BoE and the government.

We're now set for a period of above-target inflation, with the UK an outlier, at least until next April. This makes the BoE's job harder as it balances high inflation with a weak economy. This is bad news for the Chancellor who will hope borrowing cost can come down faster.

Meanwhile services inflation - which jumped in April (right chart) - on higher administered prices is hovering around 5%. This is too high for the BoE to be comfortable with - normal rates are more like 3.5%.

What have learnt about underlying inflation this month? Here is the big picture. Both goods and services inflation are above normal levels. Goods inflation - pushed up by food inflation - may fall as we get an influx of Chinese goods previously meant for the US.

Higher inflation and slowing wage growth mean that real pay growth is about to hit a brick wall. Again, there is more of this to come with the outlook for living standards a difficult one:

Higher food prices are also a problem for the Bank of England as these highly-salient prices are thought to feed into expectations of higher inflation in future. This means slower rate cuts - bad news for mortgagors.

Higher food prices are particularly bad news for struggling families, particularly in the context of signs of serious food-related hardship - here we show the increase in food bank use.

But food is also rising because of things the government is doing: higher Nat Ins (which together with the rise in the NLW hits retail harder than higher paying sectors) and some changes to packaging regulation. BoE forecasts that there is more price rises to come.

This is driven by 3 things: higher food commodity prices - below you can see some VERY high inflation rates for chocolate, coffee and animal products.

The rise in food prices is more concerning - food inflation is running at nearly 5%. That's well below the peaks of early 2023, but these rises are coming off the back of past increases in a range of essentials.

Energy inflation is also pushing up on inflation at the moment but it is important to understand that this is past falls dropping out of the annual calculation, prices are actually down this month given given a fall in the Ofgem price cap to £1,720.

But if we step back and look at what is going on with *annual* inflation - two things stand out: food and household bills. On household bills, much of this is to do with rises in some key administered prices, like water bills.

The other thing going on in transport is slightly higher petrol and diesel prices - up around 2p on the month. Not huge but this is a family essential going up in price (although prices are still lower than a year ago).

On the month the biggest upward contributor to high UK inflation was transport driven by our old friend airfares - which are very erratic. This is important as ONS say its about the timing of school holidays and will likely unwind.