September 14, 2022: UK inflation eased in August but remains close to the 40-year peak of the previous month, official data showed Wednesday, as the country grapples with a crisis in the cost of living.
The UK consumer price index (CPI) slowed to 9.9 percent in an annual comparison as motor fuel prices fell, after accelerating to 10.1 percent in July, the Office of National Statistics said.
The news comes a week before the Bank of England’s latest interest rate decision, which was postponed this week following the death of Queen Elizabeth II.
It also follows Tuesday’s higher-than-expected US inflation data, which fueled fears of a prolonged period of interest rate hikes by the Federal Reserve and triggered a sell-off in markets.
The BoE had last month raised its key interest rate 0.5 percentage point to 1.75 percent, the largest increase since 1995, as it tried to temper scalding inflation.
“A decline in the price of motor fuels was the largest downward contributor,” the ONS said in a statement on Wednesday.
“Rising food prices were the biggest … upward contribution” to inflation, it added.
Consumer price inflation has soared globally this year due to skyrocketing energy and food bills.
This has in large part been caused by supply constraints after economies reopened following pandemic lockdowns and in the wake of Russia’s invasion of Ukraine.
British Prime Minister Liz Truss last week announced a two-year freeze on domestic energy prices in a bid to reduce the rising cost of living.
Analysts expect this to bring inflation down somewhat, but remain cautious about the outlook.
“The new measures announced by the government to curb household energy prices… could see inflation peaking at a more modest 10.5 percent in October,” said KPMG UK chief economist Yael Selfin.
“But with inflation nearing double digits, the combination of projected tax cuts and household support measures could prompt the Bank of England to take a more aggressive stance to avoid higher inflation down the line.”
The BoE forecast an inflation-induced recession in the UK starting this year and had forecast a peak of 13 percent.
The rate for August is still nearly five times the BoE’s 2.0 percent target level.
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