UK inflation rate falls to 1.5% in August

The UK’s annual rate of inflation fell to 1.5 per cent from 1.6 per cent in August, according to the Office for National Statistics (ONS).
 
With the Consumer Price Index (CPI) falling, the Bank of England is under little pressure to raise interest rates in order to keep CPI inflation at or below its target rate of two per cent.
 
There was a reduction in the Retail Price Index (RPI) inflation too, falling to 2.4 per cent from 2.5 per cent the previous month.
 
The price of food and non-alcoholic drinks fell by 1.1 per cent – their steepest fall for more than a decade.
 
A spokesman for the ONS said competition between rival supermarket chains was a considerable factor, with food prices pushed up due to colder weather this time last year.
 
Jeremy Cook, chief economist at currency exchange firm, World First, said: “For all the chatter, guesswork and prophecy around possible rate hikes in the UK, inflation is currently sat at a five-year low.
 
“Of course, the headline figure does not tell the full story. Core prices surprised higher by 1.9 per cent in August; they were unaffected by the slips in oil prices or the 1.1 per cent decline in food and booze through the past 12 months.”
 
Howard Archer, chief UK and European economist at IHS Global Insight, believes the figures are good news for consumers.
 
“August’s muted consumer price inflation is welcome news for consumers’ purchasing power as they currently continue to be hampered by very low earnings growth.
 
“Indeed, even consumer price inflation of 1.5 per cent in August is still more than double current underlying earnings growth.”
 
It is the eighth month in succession that inflation has been below the Bank of England’s target of two per cent, with little pressure on interest rate setters to start putting them up.
 
But although inflation is weak, wage rises are even weaker at present. Average pay increases rose by just 0.6 per cent in the last 12 months.

Last updated: 17th September 2014