The rate of the consumer prices index was sharply down from the 2.1% recorded in July and surprised analysts who had been expecting a rate no lower than 1.9%.Mike Hardie, head of inflation at the Office for National Statistics (ONS), said: "The inflation rate has fallen noticeably into August, to its lowest since late 2016.“This was mainly driven by a decrease in computer game prices, plus clothing prices rising by less than last year after the end of the summer sales."

Chancellor of the Exchequer Sajid Javid: high wage growth means hard-earned cash is going further

The drop in inflation was the greatest month-on-month fall since late 2014 and was welcomed by Chancellor of the Exchequer Sajid Javid, who said, "Low inflation and high wage growth means people's hard-earned cash is going further, helping them to provide for their families."We're helping with the cost of living by cutting taxes for more than 30 million people and ensuring that almost a million of our dedicated public-sector workers - including our soldiers, teachers and doctors - get above-inflation pay increases."

Institute of Directors, Tej Parikh: higher prices in the pipeline

But Tej Parikh, chief economist at the Institute of Directors, said that while the fall in inflation would "buoy consumers", upward price pressures were in the pipeline.“Allied with falling inflation, the sturdy growth in pay packets will temporarily boost households’ spending power and offer some uplift to retailers," he said. "However, domestic and international factors are conspiring to push UK prices up in the near future.“Higher wages will eventually translate into inflationary pressure, while the recent decline in the value of the pound and concerns over oil supply will lead to increased input costs for British firms, raising prices across the supply chain.“The Bank of England will no doubt be wary of the upside risks to inflation down the line. Despite this, with subdued economic growth, a disorderly no-deal Brexit still possible, and a global slowdown thrown into the mix, the Bank of England's Monetary Policy Committee) is likely to keep interest rates on hold to support the economy.”

Howard Archer, EY's chief economic advisor, warns inflation likely to be markedly higher after no-deal Brexit 

Howard Archer, chief economic adviser to the EY ITEM Club, said the inflation figures would be welcomed by consumers and the Bank of England alike.However, he added: "If the UK leaves the EU without a deal at the end of October, we suspect inflation would be markedly higher and squeeze consumer purchasing power."Sterling looks highly likely to weaken markedly following a 'no-deal' Brexit from the EU, thereby pushing up companies' input costs as well as the costs of imported goods."The government has indicated that it would look to mitigate the overall impact on inflation by making overall reductions to import tariffs compared to the current situation, but the suspicion is that this will be insufficient to prevent inflation from rising materially."

Consumers need to keep spending to fuel UK growth

Ian Stewart, chief economist at Deloitte, commented: “Sharply lower inflation is great news for the UK economy. Along with soaring earnings, low inflation boosts consumer spending power just when the economy needs it."Falling inflation gives the Bank of England more headroom to loosen monetary policy. Corporate investment and manufacturing are weakening, and consumers need to keep consuming to keep UK growth going - lower inflation will help them do just that.”

UK house prices: growth slowdown

Separate data from the ONS showed that UK house prices were rising at their lowest rate in almost seven years, up just 0.7% year-on-year."Over the past three years, there has been a general slowdown in UK house price growth, driven mainly by a slowdown in the south and east of England," said the ONS."The lowest annual growth was in the North East, where prices fell by 2.9% over the year to July 2019. This was followed by the South East, where prices fell by 2% over the year."

For more UK news and views, visit our dedicated UK section.

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