UK inflation falls unexpectedly as fuel prices drop

LOWER fuel prices caused an unexpected fall in British consumer price inflation in August, official figures showed on Wednesday (Sep 14), offering some relief to households and the Bank of England (BoE) after the CPI rate hit a 40-year high.

The annual rate of consumer price inflation fell to 9.9 per cent in August from 10.1 per cent in July, below economists’ expectations in a Reuters poll for it to rise further to a fresh high of 10.2 per cent.

CPI rose by 0.5 per cent from July to August on a non-seasonally adjusted basis - below economists’ forecasts for it to rise by 0.6 per cent, the same pace as the month before.

Prices for vehicle fuels and lubricants dropped by 6.8 per cent in August, their largest monthly fall since April 2020.

Britain is still battling the highest inflation among major advanced economies, and financial markets expect the BoE to raise rates further next week, after postponing this week’s rate decision following Queen Elizabeth’s death.

Interest rate futures show a 79 per cent chance that the BoE will raise rates by 75 basis points to 2.5 per cent on Sep 22, which would be its biggest rate rise since 1989, excluding a brief attempt to bolster sterling during a 1992 exchange rate crisis.

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Separate factory cost and selling price data brought good news on inflation pressure in the pipeline, being weaker than all forecasts.

Input prices for materials and energy fell 1.2 per cent in monthly terms in August, the first fall in 2 years and driven by falling crude oil prices. Factory selling prices also fell slightly on the month. REUTERS