By Jonathan Davies

The UK rate of inflation fell to 1.5% in August, down slightly from 1.6% in July, according to the Office for National Statistics (ONS).

The ONS said the fall in inflation was largely due to slowing prices in food and drink, with petrol prices also helping.

Food prices actually fell by 1.1% compared to August last year, mainly driven by the supermarket price war and a strong growing season, the ONS said.

Upward effects, which partially offset the slowing of above prices, came from clothing, transport services and alcohol.

John Allan, National Chairman, Federation of Small Businesses, said:

“Our latest research shows small businesses intend to grow their firms and hire more staff, and the continued low level of inflation will help maintain this momentum. It is crucial that the Bank of England keeps interest rates at their current level until the recovery takes hold to keep this confidence up. For small businesses, any future increase needs to be gradual. This will give business owners the certainty needed to plan ahead and invest in their businesses.”

Jeremy Cook, chief economist at the currency exchange company, World First, said:

“For all the chatter, guesswork and prophecy around possible rate hikes in the UK, inflation is currently sat at a five year low.

“For a central bank mandated for inflation targeting and price support, this means that the Monetary Policy Committee will be able to lean on the slowing price outlook in a bid to keep policy as is for a little while longer.

“Of course, the headline figure does not tell the full story. Core prices surprised higher by 1.9% in August; they were unaffected by the slips in oil prices or the 1.1% decline in food and booze through the past 12 months.

“Producer prices are warning of lower input costs for British industry which should allow for further softening of the price outlook as much as it will allow companies to continue rebuilding margins.”

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