Figures from the Office for National Statistics (ONS) showed that prices rose less than expected in August. The annual rate of inflation fell to 6.7% last month, much lower than the rise from 6.8% in July to 7% economists had expected. Core inflation, excluding food, energy, alcohol and tobacco, stood at 6.2% in August, down from 6.9% the previous month. Analysts had expected no change.
The latest inflation data was well below the Bank’s forecast of 7.1 per cent – offering payback after several months of disappointing data coming in higher than expected. The recent fall was driven by easing food price inflation – down from 14.8 to 13.6 per cent – and highly volatile accommodation services. Closely watched services inflation also fell to 6.8 per cent, well below the Bank of England forecast of 7.2 per cent.
While inflation is still uncomfortably high in Britain – and higher than any other G7 economy – the latest data suggests that it is heading in the right direction at least, with a huge fall expected in October, raising hopes that the Bank of England may not need to raise interest rates any more after Thursday’s decision.
James Smith, Research Director at the Resolution Foundation, said “After months of disappointing data, the Bank of England has finally received some ‘inflation karma’ as price pressures eased considerably in August. This will strengthen the case that the Bank’s fourteen consecutive interest rate rises are now showing clear signs of putting downward pressure on inflation, and that its rate-rising cycle will soon end.”
“But while mortgagors will welcome the end of interest rate rises, Britain’s wider cost-of-living crunch is likely to continue well into the coming election year.”
David Cheadle, acting Chief Executive at the Money Advice Trust said “These latest inflation figures show that the pain is far from over for households bearing the brunt of this extended period of high costs. Our advisers at National Debtline are hearing first-hand from people whose incomes have been unable to keep up with the cost of essentials, such as energy, rent and food. Urgent government action is needed to support people who fall behind and ensure they have access to safe and affordable routes out of debt. I would urge anyone who is worried about their finances to contact National Debtline for free, expert advice.”
Alfie Stirling, Chief Economist at the Joseph Rowntree Foundation said “At 6.7% inflation remains high, but the real damage has already been done. For 7.3 million low-income households, the costs of essential goods and services have reached a level that is literally unaffordable. For those already skipping meals and going without hot water, the rate at which prices continue to rise is now secondary.”
“With an unprecedented 15th consecutive rise in interest rates also expected this week, people are increasingly being squeezed from all sides. Not only is the price of money itself rising rapidly – in the form of interest on credit cards, loans and overdrafts – but this is slowing wider spending in the economy too, increasing the risk of lost work and earnings.”
“Government can and should be doing much more to protect living standards for those on the lowest incomes. This starts with following the existing rules and raising benefits at least in line with inflation. And poverty charities, national health organisations and the wider public now all agree that the next step is a new guarantee that as a minimum benefits must always cover the cost of essentials.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Relief has surged as inflation fell, defying predictions of a small bump, as lower food inflation helped us digest rises in petrol prices. It’s also likely to make tomorrow’s news from the Bank of England slightly sweeter, which in turn could make anyone facing a remortgage in the near future feel less like they’ve bitten off more than they can chew.”
“Petrol stations helped take the edge off fuel price rises, which were the biggest factor pushing prices up. Oil prices have risen, with more upbeat data coming out of China – and oil producing countries turning the dial down on production. The average price of petrol rose by 5.3p per litre between July and August. However, the RAC says retailers have started taking smaller margins again, so prices haven’t risen as much as they could. It’s also worth bearing in mind that prices are still a long way away from the horrors we saw a year ago – with petrol prices down 15.2% and diesel down 19% since then.”
“This has been offset slightly by a fall in food inflation to 13.6%. Unfortunately, in the vast majority of cases, it’s not that things are getting any cheaper, it’s just that prices are rising more slowly. Take cheese for example, it’s one of the things pushing inflation down the most in the food category, because the inflation rate for cheese is so much lower than it has been (it peaked at 35.2% in January). However, it’s still up 17.6% in a year.”
“Some of the extra costs can’t ever be unwound, because things like higher staff pay are now baked in. Your own personal supermarket inflation rate will depend to a great extent on what you buy, because there are still some horrible price rises – including eggs up 21.9%, pasta and couscous up 24.5%, sauces up 28.1%, olive oil up 38.3% and sugar up 55.8%.”
“Core inflation (excluding energy, food, alcohol and tobacco) also fell, from 6.9% in July to 6.2%, which is a measure the Bank of England has a close eye on when setting rates. The fall in inflation is unlikely to change forecasts that the Bank of England will raise rates 0.25% tomorrow, and that rate hikes may be coming to an end.”
Alastair Douglas, CEO of TotallyMoney said “While in terms of peak inflation, we may be past the worst of it, prices have been rising faster than the Bank of England’s two percent target since 2021, meaning its grip is still tightening, and people are still struggling to keep up.”
“As we head into winter, shorter days and colder nights means people will be needing to keep the lights on, and their houses warm. However, with the plug being pulled on energy support schemes, and standing charges silently draining people’s pennies, one in three will find themselves paying more than they were a year ago. Sustained financial pressure is now driving homeowners to default on mortgage payments, and arrears are now at a seven-year high, jumping by more than a quarter to £16.9bn.”
“Those struggling the most need government support, the regulator needs to scrap standing charges, and the banks must stop people from falling behind. For many the worst of it isn’t over, and generation inflation will be feeling it for years to come.“