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Boon for UK households as inflation falls to near 3-year low

LONDON (AP) — Inflation in Britain fell to a near three-year low in August, official figures showed Wednesday, a boon for households at a time of acute Brexit uncertainty. The Office for National Statistics said Wednesday that consumer prices rose 1.7% in the year to August, down from 2.1% the previous month.

The August rate is the lowest since December 2016, when inflation was rising in the wake of the vote to leave the European Union, which prompted a plunge in the value of the pound and an increase in the cost of imports.

The statistics agency said computer games and toys contributed to the fall in inflation, though prices for computer games have become particularly volatile recently. Andrew Wishart, U.K. economist at Capital Economics, said inflation in this category is "affected by the prices of games in the best-seller charts, and is likely to rebound."

The fall in inflation means the rate is now below the bank's target of 2%. But rate-setters are expected to keep the bank's main interest rate unchanged at 0.75% Thursday as they await developments on Brexit.

Governor Mark Carney has said rates could go either way if Britain leaves the EU without a deal on Oct. 31. Investors will focus on the bank's statement Thursday to see if the nine-member rate-setting panel has shifted its views.

Many economists think the bank's policymakers will remain concerned by rising wages, which could lead to higher inflation at a time of historically low unemployment. Earnings including bonuses are rising 4% annually for the first time since mid-2008.

"This is the main reason why the Bank of England will likely retain its notional tightening bias at tomorrow's meeting and also suggests it's too early to pencil in rate cuts in the U.K.," James Smith, an economist at ING.

"Equally though, the ongoing uncertainty surrounding Brexit, and mounting concerns over global growth, suggests the prospect of any further policy tightening is also still quite a long way off." For the government, the combination of higher wages and lower inflation is welcome.

"Low inflation and high wage growth means people's hard-earned cash is going further, helping them to provide for their families," said Sajid Javid, the country's Treasury chief.

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