The UK rate of inflation has eased slightly again, with the Consumer Prices Index (CPI) rising by 6.7 per cent in the 12 months to August 2023. This slight drop, down from 6.8 per cent in July, means it's the lowest rate in 18 months, since February last year, and mark the sixth consecutive monthly fall in prices.
The surprise fall has sparked calls for the Bank of England to pause interest rate rises tomorrow. The Monetary Policy Committee is due to decide whether to increase the base rate for a 15th consecutive time.
Martin McTague, national chairman of the Federation of Small Businesses (FSB) said: “With signs that interest rate rises are starting to bite, tomorrow’s base rate decision by the Bank of England has to be the peak for rates, one way or another.
“Leaving rates high for longer than needed will devastate the chances of an economic recovery.“
Paul Nowak, general secretary of the Trades Union Congress (TUC), said a halt to interest rate rises is "long overdue".
He warned: "Pushing interest rates so high that the economy is driven into recession will only make the current crisis worse, costing people their jobs and their homes.”
The chief economist at the Office for National Statistics (ONS) Grant Fitzner said the slight easing was driven by falls in the "often-erratic" cost of overnight accommodation and air fares, as well as food prices rising by less than the same period last year.
He added: “This was partially offset by an increase in the price of petrol and diesel compared with a steep decline at this time last year, following record prices seen in July 2022."
Core inflation has slowed this month by more than the headline rate, driven by lower services prices, he said.
The Government pledged in January to halve inflation from 10.7 per cent to around 5.3 per cent by the end of the year.
Chancellor of the Exchequer, Jeremy Hunt said: “Today’s news shows the plan to deal with inflation is working - plain and simple.
"But it is still too high which is why it is all the more important to stick to our plan to halve it so we can ease the pressure on families and businesses. It is also the only path to sustainably higher growth.”
Myron Jobson, senior personal finance analyst at interactive investor, said: “The latest inflation reading defied expectations – but in a good way."
He added: “Crucially, core inflation, the pared down measure, which excludes volatile food and energy prices, fell for the second month in a row.
"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."
The National Association of Property Buyers (NAPB) said a 15th consecutive rise could prove a tipping point for many mortgage holders.
The NAPB’s spokesman Jonathan Rolande said he didn't think now is the right time for another hike, warning: "Things are too fragile and this could be a tipping point for many."
Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group said: “After a tough couple of years of squeezed living standards it’s nice to see some light at the end of the tunnel with inflation now below the rise in average earnings.
“However, it’s fair to say not everyone will be feeling the benefit, particularly with meteoric interest rate rises continuing to put pressure on household finances."
An emergency fund of three to six months’ worth of one's salary in easy access savings comes recommended
Mr Butler said for those who do find themselves even with a "small amount" of spare cash, topping up short or long-term savings could be worth considering, while those who have already got an emergency savings fund may opt to boost pension contributions.
He said: “It’s recommended everyone has three to six months’ worth of their salary in an easy access ‘rainy day’ savings account, to meet those sudden unexpected events that come up in life.
"If you’ve got this covered, it’s worth considering putting a bit more into a longer-term savings option, such as a pension.
"Even a small increase in your contributions has the potential to make a big difference later in life, boosting your standard of living in retirement.
"Our recent calculations found that just a one per cent increase in contributions could lead to a £58,000 boost to your pot."