UK inflation falls to 2.5%

UK Britain Union Jack 480

The UK consumer prices index has fallen to 2.5 per cent per cent in August, according to the Office for National Statistics (ONS).

The consumer prices index (CPI) fell by 0.1 per cent from 2.6 per cent in July, while the retail prices index (RPI) dropped to 2.9 per cent in August, a fall of 0.3 per cent from 3.2 per cent in July.

The drop in CPI was fuelled by downward pressures from furniture, household equipment & maintenance, housing & household services and clothing & footwear, although there was upward pressure from transport.

The fall in RPI came as downward pressures were seen in the household goods, clothing & footwear and food segments. According to the ONS, the only significant upward pressure came from fares & other travel costs.

Inflation has fallen markedly since its high in September 2011, but still remains above the Bank of England’s 2 per cent target. CPI reached a record high of 5.2 per cent in September 2011 while RPI stood at 5.8 per cent in September 2011, its highest point since June 1991.

UK economist at Capital Economics Samuel Tombs says: “August’s fall in UK inflation suggests that July’s rise was just a temporary blip away from its downward trend.

“July’s core inflation rate had been boosted by the earlier than usual end to high street sales and a sharp Olympics-related rise in air fares inflation, so a drop back in August had always looked likely.

He adds: “Admittedly, the recent increase in oil prices has meant that inflation is falling at a somewhat slower pace than seemed likely a few months ago. Indeed, headline inflation would have fallen to 2.4 per cent had it not been for the 2.5 per cent monthly increase in petrol prices.

“Nonetheless, oil prices have leveled off in recent weeks. What’s more, inflation should drop to a greater extent in September – perhaps to 2 per cent – as we reach the anniversary of last year’s utility price hikes.

“Meanwhile, the weak economy should push core price pressures down further, keeping inflation low next year. As a result, we doubt that the outlook for inflation will dissuade the Monetary Policy Committee from announcing more asset purchases later this year.”