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UK inflation unexpectedly drops to 6.7%

UK inflation eased up slightly in August, potentially easing pressure on the Bank of England to raise interest rates.

After a long and well-documented cost of living crisis, Brits will be happy to see that inflation slightly eased up in August. 

The Consumer Prices Index (CPI), which tracks the annual price changes of goods and services, fell to 6.7% in August, beating economist predictions of 7.1%. It’s also a notch down from July, which saw a CPI of 6.8%.

The core CPI, which excludes food, alcohol, energy and tobacco, eased up even further from 6.9% in July to 6.2% in August. 

While the lower-than-expected number will be welcomed by consumers, the UK economy isn’t in the clear just yet. A healthy rate of inflation is 2%, meaning the economy is still well off-target.

Today’s numbers mean that inflation is still soaring – it’s just increasing slightly slower than expected. 

The figures however may relieve the pressure on the Bank of England to raise interest rates, potentially bolstering the economy. 

UK inflation is still the highest in the G7 area, provoking criticism from the Shadow government. 

Chancellor Jeremy Hunt however expressed optimism.

In a statement, he 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,” he added.

Interest rates are “at or near” peak, says the Resolution Foundation

James Smith, research director at the Resolution Foundation, told the Guardian that the numbers reflect “inflation karma”, following months of disappointing data.

“After months of disappointing data, the Bank of England has finally received some ‘inflation karma’ as price pressures eased considerably in August,” he said. 

“This will strengthen the case that the Bank’s fourteen consecutive interest rate rises are now showing clear signs of putting downward pressure on inflation, and that its rate-rising cycle will soon end.”

However, Smith added that Britain’s wider cost of living “crunch” is likely to continue well into 2024.

Economist Sushil Wadhwani expressed a similar sentiment on Radio 4’s Today programme, stating that the BoE is “less likely” to need to raise interest rates tomorrow.

“The Bank last time told us that there were three things that they were looking at,” he said. “They were looking at whether the labour market was loosening. They were looking at what would happen to services inflation, and they would look at wages.”

“Now two out of those three things have gone favourably in the sense that the labour market has loosened more than they thought, services today came in below their forecast.”

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