UK inflation falls unexpectedly as fuel prices drop

Lower fuel prices caused an unexpected fall in British consumer price inflation in August, official figures showed on Wednesday, offering some relief to households and the Bank of England after the CPI rate hit a 40-year high.

The annual rate of consumer price inflation fell to 9.9% in August from 10.1% in July, below economists' expectations in a Reuters poll for it to rise further to a fresh high of 10.2%.

CPI rose by 0.5% from July to August on a non-seasonally adjusted basis - below economists' forecasts for it to rise by 0.6%, the same pace as the month before.

Prices for vehicle fuels and lubricants dropped by 6.8% in August, their largest monthly fall since April 2020.

Britain is still battling the highest inflation among major advanced economies, and financial markets expect the BoE to raise rates further next week, after postponing this week's rate decision following Queen Elizabeth's death.

Interest rate futures show a 79% chance that the BoE will raise rates by 75 basis points to 2.5% on Sept 22, which would be its biggest rate rise since 1989, excluding a brief attempt to bolster sterling during a 1992 exchange rate crisis.

Separate factory cost and selling price data brought good news on inflation pressure in the pipeline, being weaker than all forecasts.

Input prices for materials and energy fell 1.2% in monthly terms in August, the first fall in two years and driven by falling crude oil prices. Factory selling prices also fell slightly on the month.