Slowing food prices were the biggest contributor to the decrease along with accommodation costs.
Specifically, the inflation rate for milk, cheese, and eggs fell to 15.3 per cent, down from 18.7 per cent in July, while the rate for vegetables fell to 14 per cent, from 16.7 per cent in July, according to the Office for National Statistics (ONS).
Rising fuel prices made the biggest impact to the figure, although this is now the third month in a row it has fallen.
Yet while the rate has fallen a long way from its peak of 11.1 per cent last October, it’s still a lot higher than the Government’s 2 per cent target and while it is falling, this doesn’t mean things are getting cheaper just that they are rising at a slower rate.
Food inflation still at 13.6 per cent
Food and non-alcoholic drink prices rose by 0.3 per cent between July and August, compared to a rise of 1.5 per cent a year ago. The annual rate of inflation for these areas rose to 13.6 per cent in August, down from 14.9 per cent in July and a high of 19.2 per cent in March 2023 – the highest level seen for 45 years.
The annual rate for restaurant and hotel inflation was 8.3 per cent, down from 9.6 per cent in July, the lowest level seen since May 2022.
Core inflation, which excludes energy, food, alcohol and tobacco rose by 5.9 per cent in the 12 months to August, down from 6.4 per cent in July.
This is one of the measures the Bank of England (BoE) focusses on when deciding what to do with the base rate.
It is meeting tomorrow and it had been predicted that it would will raise rates again, to 5.5 per cent. But now core inflation has fallen there are questions over if it will raise rates at all. Experts largely agree that the rate rise will happen tomorrow but there is now less certainty that it will happen.
Significant falls ramp up the likelihood of holding rates
Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: “Another fall in inflation will fill the nation’s mortgage holders with hope that the tide has well and truly turned.
“Significant month-on-month falls ramp up the likelihood that the Bank of England will hold off on increasing rates right now. This will likely be a breath of fresh air for those on variable rates or trackers, especially if this means that interest rates are near, or at, their peak.
“There is better news for those looking to remortgage and, indeed, prospective buyers. This is due to the steady decline of swap rates, meaning many lenders have reduced rates on various deals. Although swap rates remain high in comparison to the past decade, they are some of the lowest rates we’ve seen in the past year.”
‘Unlikely to change forecasts’
However, other felt that, despite the drop, another rise was inevitable.
“The fall in inflation is unlikely to change forecasts that the Bank of England will raise rates 0.25 per cent tomorrow, and that rate hikes may be coming to an end,” said Sarah Coles, head of personal finance for Hargreaves Lansdown.
Coles added: “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.”
‘May well be the last increase for a while’
Myron Jobson, senior personal finance analyst for interactive investor, said: “Core inflation, the pared down measure, which excludes volatile food and energy prices, fell to 6.2 per cent, from 6.9 per cent in July, a faster decline than anticipated and below the headline rate.
“This reading matters because Bank of England policymakers monitor it to get a sense of inflation’s momentum. It means that the widely-touted rise in interest rates tomorrow may well be the last increase for a while – if it happens at all.
“Prices are heading in the right direction, but it’d be premature to declare victory over inflation. The road to rein in inflation remains an uncertain one.”
‘Too soon to put the brakes on interest rate hikes’
Alice Haine, personal finance analyst at Bestinvest, said: “While easing inflation is positive for the Bank of England as it means its strategy is working, it may be too soon to put the brakes on interest rate hikes just yet if it really wants to tame persistent inflation for good and bring it closer to its target of two per cent.
“Instead, the central bank is widely expected to push ahead with a 25 basis-point hike at its Monetary Policy Committee meeting on Thursday as it looks to win the battle against stubbornly high inflation – even if this risks sending the UK economy into a mild recession.
“Speculation has been building that Thursday will be the last rate hike of the current cycle, with the BoE holding at 5.5 per cent for the foreseeable future as the drag on the economy from its cycle of interest rate rises takes its toll.”
