Inflation unexpectedly slows to lowest rate in 18 months

UK inflation unexpectedly eased in August, which could take the pressure off the Bank of England to lift interest rates.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation was 6.7% in August, down from 6.8% in July.

It marks the lowest rate since February last year.

Analysts, and the Bank of England, had predicted inflation to accelerate last month to a reading of 7.1% due to a sharp rise in motor fuel amid a rebound in oil prices.

The surprise easing of CPI will be closely watched by the Bank’s policymakers, who are meeting this week to decide whether to push through another interest rate hike.

Most economists have predicted that rates will rise again on Thursday, bringing the base rate to 5.5%, but August’s inflation reading could prompt policymakers to pause their cycle of rate rises.

Chancellor Jeremy Hunt claimed the fall in the CPI rate shows "the plan to deal with inflation is working – plain and simple".

He added: "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."

The Government in January pledged to halve inflation from 10.7% to around 5.3% by the end of the year.

Grant Fitzner, the ONS’s Chief Economist, said: "The rate of inflation eased slightly this month 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 time last year.

"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."