The fall in the rate of inflation surprised economists, who expected it to rise. The Consumer Prices Index (CPI) fell from 6.8% in July to 6.7% in August.
Slowing food price increases helped drive the fall, the Office for National Statistics (ONS) found, particularly prices for eggs, milk and cheese.
Alpesh Paleja, Lead Economist at the Confederation of British Industry (CBI), said:
‘Inflation fell again in August, defying expectations of a slight uptick. We expect inflation to continue falling over the rest of this year, but the recent uptick in global oil and domestic fuel prices means that the path back down may now be bumpier.’
Following the fall in the rate of inflation, interest rates were left unchanged at 5.25% by the Bank of England's Monetary Policy Committee (MPC).
The MPC had previously raised rates 14 times in a row to tame inflation, leading to increases in mortgage payments but also higher savings rates.
Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:
‘Businesses will be giving a cautious welcome to today’s decision by the Bank of England to hold the base rate at 5.25%. Constant hikes in the cost-of-borrowing have had a hugely detrimental impact on the firms we represent.
‘Companies need reassurance that decisions on interest rates are not knee-jerk reactions to the most recent inflation data.
‘We need clear direction from decision makers, creating a roadmap for business that really boosts confidence and investment.’