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Inflation falls back below 10% in Britain, but rate rise still expected

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The outlook for Britain’s economy is not as grim as previously predicted.

The rate of inflation in Britain has dropped from its 40-year high in July, thanks to lower petrol prices, and has fallen to 9.9%, down from 10.1% the previous month. 

Economists now hope that inflation will remain around 10% or 11% rather than climbing to 15% as previously predicted. 

A fall in petrol prices was the largest downward contribution, while rising food prices pushed the rate upwards, the Office for National Statistics said. 

British consumer price inflation rose to 10.1% in July, up from 9.4% in June, in the highest figure since February 1982, according to the Office of National Statistics. 

Interest rate rise expected

Economists expect the Bank of England to raise interest rates by 0.5% next week. 

The Bank of England’s Monetary Policy Committee was due to have its next interest rate meeting on September 15, but this has been pushed back by a week due to the death of Queen Elizabeth. 

Paul Dales, chief UK economist at Capital Economics, said, “Despite CPI inflation easing from 10.1% in July to 9.9% in August, inflation has not peaked yet. 

“We think CPI inflation will rise to 11.0% later this year and that the tight labour market will keep underlying inflationary pressures strong until early next year. As a result, the Bank of England will have to continue turning the screws.”

The improved outlook is largely thanks to Liz Truss’s £150 billion support package for households and businesses, with energy bills for households capped at £2,500 from October for two years, economists believe.

Liz Truss’s energy package

Businesses have been offered a guarantee ‘equivalent’ to that offered to consumers, whose bills have been limited to a projected £2,500 per year.

Businesses have been offered protection for six months, with further details to be announced. 

Speaking in the House of Commons, Truss said,: “The business secretary will work with businesses to ensure those most in need will get support. His report will be collated in three months, giving business clarity.”

Britain’s GDP grew by just 0.2% in July, according to figures from the Office for National Statistics (ONS), and grew annually by 2.3%. 

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