New ONS figures published today (20 September) have shown that the rate of inflation has fallen to 6.7% (20 September), in an announcement that subverted economists’ expectations of an acceleration due to rising fuel prices.
The figure, taken from data in the year up to August, reflects a slight drop from 6.8% in July, putting the government closer to its end-of-year target of 5%.
The fall was largely attributed to the slowing rise of food prices, with staple items such as milk, cheese and eggs increasing at a much slower rate.
Chancellor, Jeremy Hunt welcomed the news, telling the BBC that “the plan is working” to get the UK back down to the Bank of England’s (BoE) ultimate 2% inflation target. However, he also acknowledged that 6.7% still means “a lot of pain for ordinary families”.
Food and non-alcoholic drinks saw a dramatic fall, down to 13.6% from 14.9%. The data also reveals that core inflation, which excludes energy, alcohol, tobacco and food, also fell, dropping to 6.2% from 6.9% in July.
This suggests that consumers are reining in their spending on non-essentials, such as meals out, entertainment and clothes, according to the BBC’s chief economics correspondent Dharshini David.
There are lingering concerns over the rising cost of fuel, however, given that the average price of petrol rose 5.3p per litre between July and August, currently at 148.5p per litre.
The stats are a positive counterbalance to negative forecasts of the UK’s economic outlook.
Yesterday, the Times reported that the UK’s inflation figures would likely place it towards the bottom of the G20 for economic performance, after the OECD increased its UK inflation forecasts.
This also followed former BoE Mark Carney claiming Liz Truss’ short-lived premiership turned the UK into “Argentina on the channel”.
Interest rate rises
The inflation news comes ahead of an expected interest rate rise announcement tomorrow.
It’s anticipated that the BoE will announce a further 0.25% bump, sending rates to 5.5% — the highest figure since 2007.
The BBC reports the Trade Union Congress (TUC) criticised further hikes, emphasising the harmful impact on workers.
“Pushing interest rates so high that the economy is driven into recession will only make the current crisis worse,” said general secretary Paul Nowak, “costing people their jobs and their homes.”
This follows signs that the persistently buoyant UK labour market is finally caving to rate rises, with unemployment creeping up to 4.3% this month, an increase from 4.2% in August.