UK inflation sees surprise drop

STORY: Falling fuel prices have sparked a surprise in the UK.

Inflation actually fell in August.

The headline rate dropped to 9.9%, from 10.1% the month before.

Economists had expected another increase.

The number offered some relief to households and the government.

But it’s still around five times the Bank of England’s target for price rises.

And few think the fall will stop policymakers doing more big rate hikes.

Markets are pricing in a three-quarter-percentage-point increase when the bank meets later this month.

That would be its biggest hike in around 30 years.

Prices for fuel and lubricants dropped 6.8% in August - their sharpest fall in over two years.

However, the UK still has the highest inflation rate among the G7 group of advanced economies.

Some EU countries - including Spain and the Netherlands - already have higher interest rates though.