BANK of England rate-setters have been given extra leeway to pump more cash into the struggling UK economy after a dip in inflation last month.
The fall in the annual rate of consumer price inflation to 2.5 per cent from 2.6 per cent in July had been widely expected as higher prices at the petrol pump were offset by an easing in clothing costs and domestic gas bills.
Apart from upward blips in March and July, inflation has been falling steadily since hitting a high of 5.2 per cent last September.
The central bank is hopeful that the figure will ease below its 2 per cent target early in the new year, though a renewed rise in oil prices and higher commodity costs threaten to push prices up again.
Business leaders welcomed the latest dip in inflation while analysts said there was scope for further money printing in the coming months as policymakers attempt to kick-start the ailing economy.
Howard Archer, chief UK economist at forecasting group IHS Global Insight, said: “The easing back in consumer price inflation in August supports the belief that the Bank of England will enact further stimulus to help the economy in the fourth quarter, despite some recent improved news on economic activity.
“We strongly suspect that the Bank will deliver a further £50 billion of quantitative easing (QE) in the fourth quarter, taking the stock up to £425bn. November seems a prime candidate for this.”
RBS economist Ross Walker said that he had expected greater upward price pressures on recreational goods and hotels and restaurants as a result of the Olympic Games.
“There is a little bit of relief for me around these numbers,” he noted. “They don’t present any immediate hurdle in terms of further [monetary] loosening.”