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UK inflation rate slows as food prices fall
Slowing food prices helped drive a surprise fall in inflation in August, with prices now rising at their slowest rate in a year-and-a-half across the nation.
Inflation fell to 6.7% in the year to August, down from 6.8% in July, official figures show. It is the third month in a row that the figure has dropped. Prices for milk, cheese and vegetables all fell last month, but the price of cereals rose.
Most experts had predicted inflation to increase due to a rise in the cost of petrol and diesel last month, driven by higher oil prices observed globally.
But a slowdown in rising food prices and a drop in air fares and accommodation costs all helped drive the overall rate of inflation lower. When the rate of inflation falls, it does not mean prices are coming down, but that they are rising less quickly.
Food prices went up around the world following Russia's invasion of Ukraine, which was one of the factors pushing up prices at supermarket tills.
The war disrupted supplies from the two countries, which are major exporters of goods such as sunflower oil, wheat, and fertiliser.
The drop in inflation has raised doubts over whether the Bank of England will raise interest rates on Thursday. Ahead of the inflation figure, the 15th rise in a row to 5.5% from 5.25% was widely expected, but now only half of investors expect an increase.
At 6.7%, the UK's inflation rate remains high compared to other rich countries. According to latest figures, inflation is 6.4% in Germany, 5.7% in France, 5.5% in Italy and 2.5% in the US.
Germany predicted to suffer the worst from world economic slowdown in latest economic data
Germany is expected to experience the heaviest impact from a slowdown in the world economy driven by higher interest rates and weaker global trade in the latest global data.
In downbeat forecasts for the world economy, many economists have predicted Europe’s largest economy was likely to be the only G20 country apart from Argentina to shrink this year during a wider international slowdown.
Many have left their 2023 forecasts for UK growth unchanged at 0.3%, the third weakest in the G20 outside of Germany and Argentina. It cut its estimate for UK growth in 2024 from 1% to 0.8%, with only Argentina weaker in the G20.
The UK is expected to have the highest inflation in the G20 after Turkey and Argentina, with an average rate for 2023 of 7.2%, before dropping closer to the middle of the pack with a rate of 2.9% expected in 2024.
After a stronger-than-expected start to 2023, helped by lower energy prices and China’s easing of Covid restrictions, many have predicted economic activity across leading countries was slowing towards the end of the year before a weaker 2024.
The impact of higher interest rates to tackle sky-high inflation after Russia’s invasion of Ukraine has added to pressure on households and businesses, while Germany’s manufacturing-heavy economy grapples with weaker global trade volumes experienced as a result.
Growth in China – an important German trade partner – had been weaker than anticipated, according to the data published by the OECD, while economic activity across Europe was under strain from stubborn inflation and higher interest rates.
Cutting the growth forecasts in its interim economic outlook, it said Germany’s economy was on track to shrink by 0.2% this year, down from an estimate for zero growth made in June. Many economists also issued Germany with the sharpest downgrade among EU countries covered in the report for 2024, forecasting growth of 0.9%, down from a previous estimate of 1.3%.
