By Joshua Kirby


Consumer prices rose at an unexpectedly slower rate in the U.K. in August, giving the Bank of England more room to maneuver ahead of its interest-rate decision this week.

The consumer price index rose 6.7% on year in August, slowing from 6.8% in July, according to preliminary data from the Office for National Statistics set out Wednesday. Economists had expected price rises to accelerate to 7.0%, according to a poll compiled by The Wall Street Journal.

This marks the third consecutive month of slowing inflation, which has eased steadily after spiking into double digits last year following Russia's full-scale invasion of Ukraine.

The core CPI rate, which strips out the more volatile food and energy prices, decelerated to 5.9% on year, compared with 6.9% in July. Economists had forecast a core inflation rate of 6.8%.

Lower food prices were the biggest contributor to slowing inflation, the ONS said. Energy prices, on the other hand, decreased at a lower rate in August than in July.

Services inflation--which had kept the core rate elevated--fell to 6.8% from 7.4% in July.

Prices rises in the U.K. continue to outstrip those in peers such as the U.S. and the eurozone, and inflation is still well above the Bank of England's 2% target. Nevertheless, the figures leave the BOE with more room for maneuver ahead of its monetary-policy committee meeting Thursday. Economists forecast another increase in the key rate to 5.50%, but cooling inflation could induce the bank to keep rates where they are.

"The surprise fall in inflation below market expectations will provide some comfort to the Bank of England," Joe Tuckey, FX analyst at Argentex, said in a note. Lower inflation will boost the U.K. economy in the long term, he said.

Even if the bank does decide to lift rates again this week, the better inflation figures should mean it is the last increase in the cycle, said Paul Dales, chief U.K. economist at Capital Economics.

"This easing in core inflation may mean that the bank can call time on interest rate hikes, [but] probably after tomorrow," Dales wrote in a note.


Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby


(END) Dow Jones Newswires

09-20-23 0258ET