Fall in fuel costs helps inflation ease to 9.9% in August

The rate of inflation eased slightly to 9.9% in the 12 months to August, aided by a fall in fuel costs.

The Office for National Statistics said that the fall in fuel prices was the main factor in the fall from the 10.1% CPI seen in July.

The rise in food prices has been the main reason the overall inflation figure has remained high, however.

The latest consumer prices index (CPI) measure comes against a backdrop of certainty among economists that further increases lie ahead as winter approaches, exacerbating the cost of living crisis.

That is because the government’s planned energy bill help for homes and businesses will only limit – and not cut – bills over the cold months ahead amid surging wholesale gas costs.

How the Bank of England sees the impact of this, in terms of inflation, will become clearer next week when it meets to discuss interest rates.

Policymakers are widely tipped to raise Bank rate again – perhaps by as much as 50 basis points again to 2.25% – but cut their inflation expectations to take account of the energy price guarantee.

Yael?Selfin, chief economist at KPMG UK, said the government’s intervention on energy bills could see inflation peak at 10.5% in October.

She added: “The combination of expected tax cuts and support measures for households may prompt the Bank of England to take a more hawkish stance to avoid higher inflation further down the line.

“This may result in steeper rate rises and higher rates to counteract the inflationary impacts of the expected fiscal largesse.”

UK could ‘narrowly’ avoid recession

When asked if the slight fall in inflation could mean the UK avoids a recession, Sky’s economics and data editor Ed Conway said: “It’s possible.

“Whereas previously it looked like we were facing a recession that might well have looked like the early 1990s, now it may well be that we narrowly avoid that.

“We’ll have to see – there are all sorts of things going on right now and it’s very difficult to predict, especially given what’s going on in Ukraine, a very fast moving story there which of course affects gas prices.

“Gas prices have come down a fair bit on the wholesale market due to all sorts of reasons, including that one.

“Nonetheless, things are certainly looking more promising than they were a few weeks ago both in terms of the UK and in terms of the international picture.

“So fingers crossed on that front.”

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He added: “All the same, for many households it’s already very tough unfortunately this autumn and the winter will continue to be tough but perhaps not quite as tough as many had feared.

“And the fact that inflation isn’t necessarily exceeding expectations this time around – in fact it’s a little bit lower than expectations – will give people a little bit of reassurance in a tough economic time.”

‘There is a limit to how long any firm can sustain these rising costs’

Alex Veitch, director of policy and public affairs at the British Chambers of Commerce, said the inflation figure confirmed the “sustained pressure” on businesses and consumers.

Producer price inflation remains at a record high of 20.5%, he added, saying: “There is a limit to how long any firm can sustain these rising costs before something has to give. We know from our research that two thirds of businesses plan to increase their own prices.

“The size of last week’s government intervention on energy prices should have a dampening effect on inflation when it is enacted.

“But the lack of detail on exactly how much help any individual business will get, and for how long, means very few will be planning to invest any time soon.”