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UK inflation dips as rise in cost of fuel and clothing eases UK inflation dips as rise in cost of fuel and clothing eases
(about 1 hour later)
Inflation eased down to 2.7% in August thanks to smaller price rises for petrol and new autumn fashion ranges but the cost of living continued to outstrip pay rises.Inflation eased down to 2.7% in August thanks to smaller price rises for petrol and new autumn fashion ranges but the cost of living continued to outstrip pay rises.
The UK's headline consumer price measure of inflation (CPI) has now been above the 2.0% government-set target for 45 months. Economists expect it to continue on a downward path but have warned there could be a short-term spikes upwards along the way because of volatile oil prices.The UK's headline consumer price measure of inflation (CPI) has now been above the 2.0% government-set target for 45 months. Economists expect it to continue on a downward path but have warned there could be a short-term spikes upwards along the way because of volatile oil prices.
In August, the fall to 2.7% marked the second month inflation had eased and was in line with the consensus forecast in the City. CPI was 2.8% in July.In August, the fall to 2.7% marked the second month inflation had eased and was in line with the consensus forecast in the City. CPI was 2.8% in July.
The fall came as prices for petrol, diesel and clothes rose by less than they did in August a year ago, the Office for National Statistics said. That was partially offset by upward pressure on prices from furniture, household appliance, toys and food.The fall came as prices for petrol, diesel and clothes rose by less than they did in August a year ago, the Office for National Statistics said. That was partially offset by upward pressure on prices from furniture, household appliance, toys and food.
Economists said the slowdown in inflation would bring relief to Bank of England policymakers. They have said they will keep rates low until unemployment falls further unless certain "knockouts" are triggered, including a rise in inflation 2.5% or above in 18 to 24 months' time.Economists said the slowdown in inflation would bring relief to Bank of England policymakers. They have said they will keep rates low until unemployment falls further unless certain "knockouts" are triggered, including a rise in inflation 2.5% or above in 18 to 24 months' time.
Samuel Tombs at Capital Economics commented: "We continue to think that CPI inflation is likely to fall back to the 2% target within the next few months – a development that would help to ease the squeeze on households' real earnings and cool fears in the markets that one of the inflation knockouts to the MPC's forward guidance is likely to be breached."Samuel Tombs at Capital Economics commented: "We continue to think that CPI inflation is likely to fall back to the 2% target within the next few months – a development that would help to ease the squeeze on households' real earnings and cool fears in the markets that one of the inflation knockouts to the MPC's forward guidance is likely to be breached."
But Howard Archer, an economist at Global Insight, said inflation could rise again. "Looking ahead, consumer price inflation is likely to hover close to 3.0% in the near term, and there remains a risk that it could yet reach 3.0% if oil prices spike up anew," he said.But Howard Archer, an economist at Global Insight, said inflation could rise again. "Looking ahead, consumer price inflation is likely to hover close to 3.0% in the near term, and there remains a risk that it could yet reach 3.0% if oil prices spike up anew," he said.
The news on the other closely watched measure of inflation was slightly less reassuring. The retail price index (RPI) rate, which includes housing costs and is used for many pay negotiations, rose to 3.3% from 3.1% in July and was slightly ahead of forecasts for 3.2%.The news on the other closely watched measure of inflation was slightly less reassuring. The retail price index (RPI) rate, which includes housing costs and is used for many pay negotiations, rose to 3.3% from 3.1% in July and was slightly ahead of forecasts for 3.2%.
Both cost of living measures outstrip average pay growth of 1.0%, meaning that many workers' incomes contiunue to fall in real terms.Both cost of living measures outstrip average pay growth of 1.0%, meaning that many workers' incomes contiunue to fall in real terms.
The Treasury said that CPI inflation was now nearly half its peak of 5.2%, but said it was aware of the continuing strain on households.The Treasury said that CPI inflation was now nearly half its peak of 5.2%, but said it was aware of the continuing strain on households.
"The economy is turning a corner, but the recovery is in its early stages and risks remain," a spokesperson said."The economy is turning a corner, but the recovery is in its early stages and risks remain," a spokesperson said.
"The government knows that times are tough and that is why we have taken action to help with the cost of living including increasing the tax-free personal allowance, introducing tax-free childcare and freezing fuel duty and council tax.""The government knows that times are tough and that is why we have taken action to help with the cost of living including increasing the tax-free personal allowance, introducing tax-free childcare and freezing fuel duty and council tax."
But the debt charity StepChange said the basic cost of living is becoming increasingly difficult to meet for millions of British households.But the debt charity StepChange said the basic cost of living is becoming increasingly difficult to meet for millions of British households.
"The fall in inflation is welcome, but while wage growth remains anaemic family budgets will be increasingly stretched by spiralling living costs, leaving many vulnerable to debt," said the charity's head of policy, Peter Tutton."The fall in inflation is welcome, but while wage growth remains anaemic family budgets will be increasingly stretched by spiralling living costs, leaving many vulnerable to debt," said the charity's head of policy, Peter Tutton.
He added that the impact of low wage growth and rising costs is reflected in the growing numbers of StepChange debt charity clients with arrears on essential household bills. Between 2011 and 2012 the number of its clients with arrears on at least one household bill rose from 27% to 35%, while the average arrears on household bills rose from £2,134 to £2,258 over the same period.He added that the impact of low wage growth and rising costs is reflected in the growing numbers of StepChange debt charity clients with arrears on essential household bills. Between 2011 and 2012 the number of its clients with arrears on at least one household bill rose from 27% to 35%, while the average arrears on household bills rose from £2,134 to £2,258 over the same period.
Economists highlighted the strain on consumer spending as the wage squeeze continues.Economists highlighted the strain on consumer spending as the wage squeeze continues.
"Weekly earnings are up only 1.1% year-on-year and have been undershooting inflation for much of the past five years meaning that households have been financing real-term increases in spending through borrowing and the running down of savings," said James Knightley at ING Financial Markets."Weekly earnings are up only 1.1% year-on-year and have been undershooting inflation for much of the past five years meaning that households have been financing real-term increases in spending through borrowing and the running down of savings," said James Knightley at ING Financial Markets.
"Nonetheless, we are hopeful that the ongoing increases in employment and the strengthening economic environment will result in a gradual increase in wages and with inflation trending lower we can start to see positive real wage growth next year. This would give us greater confidence in the UK economic rebound continuing.""Nonetheless, we are hopeful that the ongoing increases in employment and the strengthening economic environment will result in a gradual increase in wages and with inflation trending lower we can start to see positive real wage growth next year. This would give us greater confidence in the UK economic rebound continuing."
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