"The inflation environment currently looks benign, particularly with supermarkets heavily engaged in a food price war and oil prices currently trading at a two-year low"
- Howard Archer from IHS Economics
Britain's inflation declined further below the Bank of England's 2% target in August, easing pressure on the central bank to lift interest rates from their record low. The annual rate of consumer inflation fell to 1.5% from 1.6% in August, according to the Office for National Statistics. The largest downward pressure came from falling prices of food and non-alcoholic beverages, which marked their steepest decline of 1.1% for more than a decade. Nevertheless, the core inflation, which strips out volatile components such as food, energy, alcoholic beverages and tobacco, accelerated to 1.9% in August, compared to 1.8% in the previous month. Inflation in Britain remains subdued despite the pace of economic growth being the strongest among the seven most developed economies. Despite the rate of consumer price inflation hovering below the official target, expectations for the inflation rate rose in August compared with the previous survey in May, latest data from the BoE showed. This year inflation is expected to rise to 2.8%, compared to predictions of 2.6% in May's survey, while in the medium term, the public see a higher rate of 2.8%, against 2.5% given in the previous survey. Separately, producer price inflation in the U.K. declined for the third straight month in August. PPI input dropped by a seasonally adjusted 0.6%, coming against experts' expectations for a 0.4% decrease and following a downwardly revised 1.7% fall in July. PPI output also dipped 0.1% in August in line with expectations.
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