UK Inflation Drops to 6.7 Percent, Amid Slower Growth in Food Prices

Chancellor of the Exchequer Jeremy Hunt speaking during the British Chambers Commerce Annual Global conference, at the QEII Centre, London, on May 17, 2023. (Jordan Pettitt/PA Media)

Britain’s high inflation rate fell from 6.8 percent in July to 6.7 percent in August, driven by a slowing rise in food prices and often-volatile hotel prices and airfares.

The news comes as a relief to consumers, who have been struggling with the impact of high inflation rate the whole year.

As the Consumer Prices Index (CPI) decreased to its lowest value since February 2022, so did the CPI including housing costs (CPIH). It now stands at 6.3 percent, down from 6.4 percent in July.

The Office of National Statistics (ONS) attributed the monthly drop to price easing in food and non-alcoholic beverages. A range of foods, including milk, cheese and eggs, vegetables, and fish, was cheaper in August than a month before.

The annual inflation rate for restaurants and hotels was the lowest since May 2022, at 8.3 percent. Hotel accommodation was a significant contributor to the rate drop, although it is a category that is volatile month to month, the ONS said.

August also saw a decrease in air fares prices, which fell by 2.1 percent, compared with a rise of 13.4 percent a year ago. This is only the second time flights were cheaper in the summer period between July and August, since 2001. The first time was in 2020 when travel was affected by the pandemic.

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In contrast, fuel prices were not a bearer of good news, when it comes to inflation easing. More expensive petrol and diesel led to a 0.2 percent rise, compared with a 1.2 percent fall at the same time last year.

The inflation easing came unexpectedly for some financial experts, who predicted a 7.1 percent rise in August, due to a recent increase in oil prices.

The government has made it its priority to tackle high inflation and halve it by the end of the year. Prime Minister Rishi Sunak hailed the new figures on Wednesday. He took to X, formerly known as Twitter, to say that it was “good news for hardworking families” across the UK.

“Halving inflation is my top priority because inflation eats into the pounds in your pockets and makes everyone poorer. We’ll stick to the plan and continue to support you with the cost of living,” the PM said.

To succeed in its goal, the government needs to bring inflation down to around 5 percent by the end of this year.

Reacting to the latest inflation figures, Chancellor Jeremy Hunt said the government’s plan is working.

“Inflation never falls in a straight line but it’s now down 40 percent from its peak,” the chancellor said on X.

He, however, acknowledged the “immense pressure on family budgets” caused by high rates.

“That means no borrowing binge, which would simply keep interest rates higher for longer,” Mr. Hunt added.

It comes ahead of the Bank of England meeting on Thursday, which will determine the new cost of borrowing money. With the CPI slowing down, borrowers may see the bank rate remain unchanged at 5.25 percent. This will bring relief to many households, struggling with high mortgage rates.

Although, at the previous BoE meeting, two members preferred to increase the rate to 5.5 percent, which may indicate the way it will move forward.

Should the BoE decide to increase the interest rates, it will risk damaging the UK’s economic prospects further, said Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales.

The bank risks overshooting on rate hikes, given the long time lag between rate rises and their effect on the real economy,” Mr. Thiru added.

Shadow chancellor Rachel Reeves did not take well to the new inflation figures, noting they are the highest, compared to “any major economy this year.” She criticised the Conservatives for “wreaking havoc” on working people and vowed that Labour would make Britons better off.

The latest inflation ease comes ahead of the Conservative Party Conference in October, where the ruling party will be able to flaunt its economic progress in response to the criticism by the opposition.