UK inflation rate falls in August to 1.6%

| September 15, 2009 | 0 Comments

The Consumer Prices Index (CPI), a key measure of inflation, has fallen from 1.8% to 1.6% in August - the lowest level since February 2005, the Office for National Statistics (ONS) said today.

Many analysts had expected it to fall to 1.4%.

The fall in CPI was driven by lower food costs, with the price of fruit, vegetables, bread and meat all declining.

In stark contrast, this time last year, CPI hit 5.2% (a 16-year high), driven by higher oil and food prices.

However, the fall means inflation continues to be below the Bank of England’s target of 2%.

Meanwhile, the Bank’s Governor, Mervyn King, believes the CPI will fall to a level of 1% or lower over the next few months, as the economic downturn hits demand and sends prices lower.

Mr King will have to write to Chancellor Alistair Darling later this year explaining why inflation has fallen below the target.

Meanwhile, the Retail Prices Index (RPI) (which includes mortgage costs) crept up slightly to -1.3% from -1.4%.

Over the last year or so, the RPI rate has declined as the Bank of England cut interest rates to 0.5% - the lowest level since the Bank was established over 300 years ago.

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