POLITICS

UK Inflation Falls To 2.7% In August As Fuel, Clothing Costs Ease

17/09/2013 11:37 BST | Updated 17/09/2013 11:47 BST
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LONDON - AUGUST 7: Mark Carney, governor of the Bank of England, speaks during the bank's quarterly inflation report news conference at the Bank of England on August 7, 2013 in London, England. The Bank of England for the first time linked the outlook for its benchmark interest rate to unemployment and inflation and will keep its current policy 'at least' until the jobless rate falls to 7 percent. (Photo by Simon Dawson/Bloomberg - Pool /Getty Images)

Inflation has fallen to 2.7% in August while the fuel and clothing costs eased, official figures have revealed.

The fall in Consumer Price Index (CPI) fell from an annual rate of 2.8% in July, according to the Office for National Statistics. However, prices are still rising faster than wages, which increased by only 1.0% during the same period.

The CPI measure is significant because Bank of England policymakers use it to help set interest rates. The bank is holding off raising interest rates to control inflation until unemployment falls below 7%.

The CPI fall keeps within the Bank's target to keep inflation within a percentage point off the 2% mark. Bank governor Mark Carney would be forced to write to the chancellor explaining himself if inflation broke past the 3.1% threshold.

Sasha Nugent, analyst at Caxton FX, said: "Carney has gained some breathing room for now, but with the economy picking up, it is unlikely inflation will remain subdued."

However, prices are still rising faster than wages, which increased by only 1.0% during the same period.

Clothing and footwear inflation came in at 2%, compared to 2.8% last year, as fashion retailers introduce their autumn ranges. Petrol prices soared by 2p per lite compared to 3.5p per litre in the same month last year.

Inflation as measured by the retail prices index (RPI) rose to 3.3% in August from 3.1% in July.

Others warned that the latest economic figures showed that living standards were being squeezed yet further.

TUC General Secretary Frances O’Grady said: “With every measure of inflation showing a rise of at least 2.5 per cent, the longest wage squeeze in over a century shows no sign of abating.

David Kern, Chief Economist at the British Chambers of Commerce, said: “The fall in inflation will ease pressure on businesses and consumers at a time when earnings growth is only around 1%, and the government is still pressing ahead with cutting the budget deficit."