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UK inflation rate eases in August, ONS says

The annual rate of inflation in the UK, as measured by the Consumer Prices

Index (CPI), fell back to 2.5% in August from 2.6% the month before.

The Retail Prices Index (RPI) inflation measure, which includes housing costs,

fell to 2.9% from 3.2%, the Office for National Statistics (ONS) said.

The fall was partly due to smaller rises in furniture and gas prices.

The CPI inflation rate rose in July, but has been falling steadily since

peaking at 5.2% in September last year.

The latest figures show that prices were 2.5% higher in August than they were

in the same month last year.

Further falls?

The ONS said smaller rises in the price of clothing had also contributed to the

fall in the rate of inflation - the price rises recorded in July had been the

largest on record.

This helped to offset bigger rises in the price of petrol and a rise in the

cost of rail travel, which had fallen a year earlier.

Analysts had expected the CPI rate to fall following the rise to 2.6% in July,

which was also down to rising air fares and an early end to sales due to the

Olympics.

ONS Director Richard Campbell: "Important to look at the general inflation

trend"

They said they now expected the inflation rate to continue to fall towards the

Bank of England target of 2%.

James Knightley from ING told the BBC that, despite upward pressure from

commodity, fuel and food prices, he expected inflation to be "a little bit

lower by the end of the year".

Peter Dixon from Commerzbank agreed: "From here on we should be looking at

lower rates for some time".

More stimulus?

Analysts suggested that the falling inflation rate eased concerns that the

Bank's policy of pumping money into the economy to stimulate demand - known as

quantitative easing (QE) - could lead to inflation picking up.

The UK economy has contracted for the past three quarters and the Bank

announced another 50bn of QE in July, taking the total amount of money it has

injected into the economy under this programme to 375bn.

Some analysts suggested this total could rise again later this year, as the

economy struggles to exit recession.

"We doubt that the outlook for inflation will dissuade the [Bank] from

announcing more asset purchases later this year," said Samuel Tombs from

Capital Economics.