The UK’s inflation rate has fallen for the first time in nearly a year owing to a drop in fuel prices, though it remains close to its 40-year record and food prices keep rising.
According to the Office for National Statistics (ONS), the UK’s Consumer Prices Index (CPI) rose by 9.9 percent in the 12 months to August 2022, down from 10.1 percent in July.
The ONS said the biggest downward pressure on the inflation rate was the prices of motor fuels, which have been falling in recent months.
The 6.8 percent drop in fuel prices was the highest since between March and April 2020, the early days of the COVID-19 pandemic.
Meanwhile, rising food prices made the largest upward contribution to the change in the rates, according to the ONS.
George Lagarias, chief economist at accountancy firm Mazars, warned that it will be some time before inflation truly starts dropping off.
“Higher energy prices for all the previous months have fully fed into most supply chains and it will take months of lower oil for end-consumer prices to meaningfully come down again. Inflation may well remain a central theme until at least the end of the year,” he said.
Wages Lag Behind Inflation
British workers’ incomes have been shrinking in real terms amid soaring inflation despite significant wage rises.Though the average total pay (including bonuses) grew by 5.5 percent in May to July 2022, the real-term pay fell by 3.6 percent year-on-year when inflation is taken into account, the ONS said.
According to research firm Kantar’s latest report, published on Sept. 13, grocery price inflation hit 12.4 percent during the past month, up from last month’s previous record of 11.6 percent.
As part of a package to tackle the cost of living squeeze, Britain’s new Prime Minister Liz Truss announced on Sept. 8 that the price of a typical British household’s energy bill will be capped at £2,500 ($2,933) a year for the next two years.
Yael Selfin, chief economist at consultancy KPMG UK, said the new measures could see inflation peak at 10.5 percent in October.
But she warned: “With inflation in near double digits, 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.”
