UK inflation in surprise fall in Aug, though BoE still set to raise rates

Inflation in Britain fell unexpectedly in August to its lowest level since the start of Russia's invasion of Ukraine, which led to sharp rises in energy and food costs.

The Office for National Statistics said Wednesday that inflation, as measured by the consumer prices index was 6.7 per cent in August this year, down from 6.8 per cent in July. The decline took inflation to its lowest level since February 2022.

It said that lower hotel and air fare costs and a moderation in food price rises helped offset an increase in energy prices on the back of higher crude oil prices.

The decline was unexpected. Most analysts had expected an increase to around 7 per cent.

Though the surprise decline was encouraging, inflation remains way above the Bank of England's target rate of 2 per cent and most economists think it will raise its main borrowing rate once again on Thursday by a quarter of a percentage point to a near 16-year high of 5.5 per cent.

Like other central banks around the world, the Bank of England has raised interest rates aggressively over the past couple of years as it seeks to counter price rises first stoked by supply chain issues during the corona virus pandemic and subsequently Russia's invasion of Ukraine. Inflation had hit a peak of 11.1 per cent in October 2022.