UK inflation falls to 1.7%

Inflation was 1.7% in August, which means British employees are enjoying the highest real-terms pay rises since July 2015.

Prices for everyday goods and services in the UK increased at a rate of 1.7% in August this year. The rate for CPI and CPIH is currently the same, according to the Office for National Statistics (ONS).

This means that workers are now receiving a real-terms pay rise of 2.3% on average, compared to 4% wage growth recorded by the ONS earlier this month.

This is the highest real-terms wage growth since July 2015.

Chris Towner, director at JCRA, comments: “The sun continues to shine on the British consumer. With the rate of inflation falling and average earnings soaring to 4%, this gives the British worker real wage inflation of 2.5%, which comes as a useful buffer in these uncertain times.

“Prices were kept at bay by lower computer game and clothing prices and given the competitive pound you can expect retail sales to hold up when they are released tomorrow.”

While workers are now receiving significant pay rises, the spectre of inflation bouncing back remains, as in normal economic environments more pay leads to more spending, which leads to more inflation.

Mr Towner adds: “The members of the Bank of England MPC can pause for breath for now; however, looking forward this may seem more as a temporary downward blip in inflation rather than something more structural.

“Wages at 11-year highs and inflation at multi-year lows normally points to inflationary pressures and this will remain a medium- to longer-term concern for the Bank of England.”

The shock increase in oil prices, thanks to an attack on a large Saudi Arabian oil production facility on Monday, will also likely feed into high price increases as the cost of filling up cars with petrol will no doubt rise sharply as the costs feed through the economy.

- This article was first written by our sister magazine Moneywise.

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