Core inflation, which excludes energy and food prices, also fell.
UK inflation, which is used to measure how prices increase, fell to 6.7% in the year to August, according to the Office for National Statistics (ONS). In comparison, inflation sat at 6.8% in the year to July.
Much of the drop in inflation is due to food prices rising at a slower pace. In the year to August, the price of food and non-alcoholic beverages rose to 13.6%, down from the 14.9% in July.
Milk, cheese, eggs, vegetables, and fish were the items which have eased in price.
Meanwhile, Grant Fitzner, Chief Economist at the ONS, said the reduction in inflation was also due to a fall in prices accommodation services. This includes hotel costs and airplane fees, which can often be volatile.
One factor which offset the fall in inflation in August was the increase in fuel prices. Since peaking in July 2022, fuel prices have been on a decline and fell sharply earlier this year.
Inflation is used to measure how prices rise over a certain period, usually one year. While inflation has fallen this month, it doesn’t mean prices are getting cheaper in the UK. It rather means that prices are rising at a slower rate. To find out more about inflation, read our guide.
Core inflation, which excludes energy and food prices, rose in the 12 months to August to 6.2%. In comparison, it rose by 6.9% in the same period to July.
“Core inflation has slowed this month by more than the headline rate,” said Fitzner.
He explained that this was due to lower service prices.
Since food and energy prices can be volatile, core inflation is used by economists for a better understanding of underlying prices increases.
It is also used by the Bank of England when setting interest rates.
Chancellor Jeremy Hunt said the latest figures prove that the Government’s plan to reduce inflation is working.
“We need to stick to it [the plan]: even at 6.7% there’s still immense pressure on family budgets,” he said.
Meanwhile, Darren Jones, Shadow Chief Secretary to the Treasury, told BBC that the fall in inflation, "will mean very little to families across the country that can't afford to pay their bills".
Use the Moneyfactscompare.co.uk charts to find the best savings rates. From easy access accounts to fixed rate bonds, our charts are updated throughout the day so you can keep on top of the market.
Inflation is still eroding savers’ cash in real terms, so it’s imperative they take time to ensure their account is offering a competitive return on their investment.
The latest top rate deals for savers who only wish to lock their cash away over the shorter-term have improved since the last inflation announcement, and so have easy access accounts. If savers want to spread their cash across a flexible account and a fixed bond, then this will allow them to take advantage of higher returns but also retain access to a proportion of their cash in an emergency.
However, depending on demand, some market-leading accounts could be pulled from sale, so quickness is key.
There has been a positive uplift in savings rates overall, thanks to competition and back-to-back Bank of England base rate rises, but not every consumer may be seeing the benefits. Indeed, less than a third of the savings market pays above base rate, and there are even some easy access accounts paying just 1%.
It is essential for savers to ditch and switch if their loyalty is not being rewarded. If savers are prepared to give notice to access their cash, then they could find better returns available on notice accounts, which pay over 4% on average. Notice accounts have flourished this year and may be a more suitable choice than a fixed rate bond.
Not to go unnoticed, providers have been particularly active within the ISA market this month, with several improvements made across easy access, notice and fixed rate ISAs.
Those savers who may be concerned about the impact of rising interest rates on their Personal Savings Allowance (PSA), may then be pleased to see ISAs improving, as these protect deposits under a tax-free wrapper. The PSA has been a useful allowance, but some savers could breach it, so an ISA may be worth considering.
There are even deals that apply flexible ISA rules and some providers that allow investors to split their ISA allowance across different options within their product range. Splitting out ISAs is a way for savers to take advantage of fixed rates and the more flexible easy access ISA rates.
Whichever account savers choose, it’s imperative they pick an account that suits their personal circumstances and take note of deals on offer from the more unfamiliar brands.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfactscompare.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.