The Office for National Statistics said falling fuel prices were the main factor in the drop from the 10.1% CPI seen in July. However, rising food prices were the main reason headline inflation remained high. The latest consumer price index (CPI) reading comes amid certainty among economists that they expect further increases as winter approaches, exacerbating the cost-of-living crisis. That’s because the government’s planned help with energy bills for homes and businesses will curb – not reduce – bills in the cold months ahead amid rising 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 expected to raise the Bank rate again – perhaps by as much as 50 basis points back to 2.25% – but lowered their inflation expectations in light of the energy price guarantee. Yael Selfin, chief economist at KPMG UK, said government intervention in energy bills could see inflation peak at 10.5% in October. He added: “The combination of expected tax cuts and household support measures may prompt the Bank of England to take a more aggressive stance to avoid higher inflation further down the line. “This may result in sharper rate hikes and higher interest rates to offset the inflationary effects of the expected fiscal glut.” The UK could ‘narrowly’ avoid recession Asked if the slight fall in inflation could mean the UK is avoiding recession, Sky’s finance and data editor Ed Conway said: “It’s possible. “Whereas it previously looked like we were facing a recession that might well resemble the early 1990s, now we might well avoid that. “We have to see – all things are happening right now and it’s very difficult to predict, especially given what’s happening in Ukraine, a very fast-moving story there that of course affects gas prices. “Gas prices have come down quite a bit in the wholesale market for a number of reasons, including this one. “However, things are certainly looking more promising than they were a few weeks ago, both in terms of the UK and the international picture. “So fingers crossed on that front. “However, for many households it is already very difficult unfortunately this autumn and the winter will continue to be harsh, but perhaps not as harsh as many feared. “And the fact that inflation isn’t necessarily beating expectations this time – in fact it’s a little below expectations – will give people some confidence in a tough economic time.” “There is a limit to how long any business can sustain these rising costs” Alex Weitz, director of policy and public affairs at the British Chambers of Commerce, said the inflation figure confirmed “prolonged 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 business can sustain these rising costs before they have to give something. We know from our research that the two a third of businesses plan to raise their own prices. “The size of last week’s government intervention in energy prices should have a restraining effect on inflation when it takes effect. “But the lack of detail about exactly how much help each individual business will receive and for how long means that very few will be planning to invest any time soon.”
