UK inflation unexpectedly slows to lowest rate in 18 months at 6.7%

Analysts had predicted inflation to accelerate last month. Credit: PA

UK inflation unexpectedly fell in August as a drop in hotel and air fare costs and a slowdown in food price rises helped offset a jump in fuel costs, according to official figures.

The Office for National Statistics (ONS) said Consumer Prices Index inflation was 6.7% in August, down from 6.8% in July, the lowest rate since February last year.

Analysts 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 fall could take the pressure off the Bank of England to lift interest rates on Thursday.

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.

Chancellor Jeremy Hunt said the new figures show the plan to combat inflation is 'working'. Credit: PA

“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.”

Chancellor Jeremy Hunt has claimed the fall 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," he warned.

“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.

Despite the fall, shadow chancellor Rachel Reeves said: “The UK is forecast to have the highest inflation of any major economy this year.

“The Prime Minister is too weak to turn things around, while his predecessor Liz Truss continues to call for the same policies that crashed the economy this time last year.

“The Conservatives have wreaked havoc and working people are paying the price.”

She claimed a Labour government would “grow our economy so we can increase living standards, bring down bills and make working people in all parts of the country better off”.

The UK is on track to witness the highest inflation rate of any G7 advanced economy. Credit: PA

Food prices increased to 13.6% in August against the same month last year, easing back from 14.9% growth in July, with the largest falls coming from milk, cheese, eggs, vegetables and fish.

It means that UK consumers still face climbing prices in supermarkets as food inflation remains well in double digits.

Meanwhile, the average price of petrol rose by 5.3p per litre between July and August – compared with a much sharper drop in prices last year from a record high in July 2022.

It comes a day after the Organisation for Economic Co-operation and Development (OECD) forecast that the UK economy is set to witness the highest inflation rate of any G7 advanced economy.

The OECD said it expects UK inflation to be 7.2% in 2023, which would be the fastest rate across the G7 and the third fastest across the G20.

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know…