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UK Inflation Falls Below 10% in August on Fuel Price Drop

Inflation in the UK decreased in August as a result of falling fuel prices, but food costs increased as a result of the ongoing cost-of-living crisis in the nation.

Estimates from the Office for National Statistics, released on Wednesday, showed that the consumer price index increased by 9.9% annually, slightly less than the consensus estimate of 10.2% among economists surveyed. Furthermore, it decreased from July’s 10.1% figure.

Consumer prices increased by 0.5% on a monthly basis, slightly less than anticipated. Core inflation, which does not include volatile prices for food, alcohol, and tobacco, increased by 0.8% from one month to the next and 6.3% from one year ago, as predicted.

“A fall in the price of motor fuels made the largest downward contribution to the change in both the CPIH and CPI annual inflation rates between July and August 2022,” the ONS said in its report. “Rising food prices made the largest, partially offsetting, upward contribution to the change in the rates.”

On Wednesday morning, the value of the pound relative to the dollar was roughly flat, hovering around $1.1490.

This year, the U.K. has experienced one of the sharpest falls in real wages on record as a result of skyrocketing food and energy costs and pay increases that have not kept up with inflation.

The emergency fiscal package, which was unveiled last week by the new British Prime Minister Liz Truss, will cap annual household energy costs at £2,500 ($2,881.90) for the next two years, while also providing businesses with an equivalent guarantee for the following six months and additional support for vulnerably affected industries.

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Analysts anticipate that the measures, which are projected to cost the public purse about £130 billion, will significantly improve the medium-term inflation outlook while sharply reducing it in the short term.

Following a delay caused by the passing of Queen Elizabeth II, the Bank of England is scheduled to announce its most recent monetary policy decision on Thursday. It is widely anticipated that the bank will choose to raise interest rates sharply by 75 basis points in an effort to contain inflation.

The Bank predicted that inflation would peak at 13.3% before the end of the year at its most recent meeting, but policymakers will now be reevaluating their predictions in light of Truss’s recent announcement of a new energy cap.

“With hope, the cap on energy bills may mean inflation is now close to peaking, though last month’s fall could likely be a fluke and we may see inflation climb further still in the months to come,” a fixed interest analyst noted.

The energy plan may be beneficial, but it comes at the expense of higher levels of government borrowing and spending, which may lead the Bank of England to raise rates even further than initially anticipated.

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  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.

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