UK inflation in surprise fall to 6.7% despite rise in fuel prices
UK inflation unexpectedly fell in August to 6.7% despite a sharp rise in average fuel prices for motorists, easing some of the pressure on the Bank of England to raise interest rates.
In a crunch week for the economy, the Office for National Statistics said the annual inflation rate as measured by the consumer prices index continued to drop for the sixth month in a row from a reading of 6.8% in July. City economists had forecast a modest increase to 7%.
The reduction in the inflation rate does not mean that prices are falling, only that they are rising at a slower pace.
It comes with financial markets poised for the Bank of England to raise interest rates for the 15th consecutive time on Thursday, in what many economists expect to be the final move since it began to increase borrowing costs in December 2021.
Falling prices for hotels and air fares helped pull down the headline rate in August, while food prices rose by less than at the same time last year. This was partly offset by the soaring cost of petrol and diesel, amid a sharp rise in global oil prices.
Core inflation – which excludes energy, food, alcohol and tobacco – fell by more than expected from 6.9% in July to 6.2% in August, driven by lower services prices. Figures for core inflation and the service sector are closely watched by the Bank when determining interest rates.
The chancellor, Jeremy Hunt, said the latest inflation figures showed the government’s plan was working. “But it is still too high, which is why it is all the more important to stick to our plan to halve it so we can ease the pressure on families and businesses. It is also the only path to sustainably higher growth.”
Rachel Reeves, the shadow chancellor, said “The prime minister is too weak to turn things around, while his predecessor Liz Truss continues to call for the same policies that crashed the economy this time last year.
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“The Conservatives have wreaked havoc and working people are paying the price.”