The rate of inflation fell sharply last month raising hopes that the worst of the cost of living crisis may be over.
The headline measure of inflation - the Consumer Price Index (CPI) - dropped to 6.8 per cent in July, down from 7.9 per cent in June, according to figures from the Office for National Statistics (ONS).
It means prices are now rising at their slowest rate since February 2022 when inflation was 6.2 per cent. Crucially they are also going up less quickly than wages meaning that most people are getting better off for the first time since October 2021. On Tuesday the ONS revealed that average basic pay surged by a record 7.8 per cent in the three months to June.
The sharp fall will also ease the pressure on the Bank of England to continue hiking interest rates though at least one more increase is expected next month when the cost of borrowing is likely to raised from 5.25 per cent to 5.5 per cent.
Inflation has been slowly easing since it peaked at 11.1 per cent last October propelled by rocketing energy prices after the Russian invasion of Ukraine. That in turn pushed up the price of most other everyday items, including food and drink.
Wednesday’s figure covers the month when average annual household energy bills fell from the £2,500 level of the Government’s Energy Price Guarantee to the £2,074 of regulator Ofgem’s latest energy bill cap.
The data from the ONS shows gas bills fell 25.2 per cent between June and July, while electricity bills are 8.6 per cent lower. The fall in the CPI was also driven by slower food and drink price rises. They rose by 14.9 per cent the slowest since September 2022.
The July inflation figure - as measured by the Retail Prices Index (RPI) - is normally used as a peg for the following year’s increase in rail fares. However, the Government said on Tuesday that ticket prices would go up by less than the July RPI, which came in at 9 per cent.
CPI inflation is forecast to fall back slowly to around five per cent by the end of the year. That would meet Rishi Sunak’s New Year pledge to halve inflation in 2023.
Chancellor of the Exchequer Jeremy Hunt said: “The decisive action we’ve taken to tackle inflation is working, and the rate now stands at its lowest level since February last year.
“But while price rises are slowing, we’re not at the finish line. We must stick to our plan to halve inflation this year and get it back to the 2 per cent target as soon as possible.”
