Inflation drops to 2.5 per cent

Inflation in the UK fell to 2.5 per cent in August from 2.6 per cent in July, figures from the Office for National Statistics (ONS) show.

The drop in the Consumer Prices Index (CPI) came from a smaller than expected rise in domestic gas prices, and the decreasing prices of furniture, household equipment, clothing and footwear.

The Retail Prices Index (RPI) also fell to 2.9 per cent in August from 3.2 per cent July.

Despite an unexpected rise from June to July, inflation has gradually been falling since its peak of 5.2 per cent in September 2011.

The latest inflation figure brings it closer in line with the Bank of England's two per cent target, and could pave the way for more quantitative easing in the future.

While the decrease in inflation comes against higher transport costs, particularly motor fuels and a rise in oil prices, rising fuel costs may hamper a further ease in inflation. Petrol and oil prices have both increased over the last month.

Ranvir Singh, chief executive of market analysts RANsquawk, warned that the figures could encourage complacency.

"With CPI dipping once again, it's tempting to write off July's jump in inflation as a one-off spike," he told the Telegraph.

"While July's surge in prices in the face of anaemic demand and weak consumer confidence was truly baffling, the inflationary pressures which threaten to push up prices at the tail end of 2012 are clear to see. With Brent crude approaching a four-month high and prices at the pump creeping steadily up, it may be August's easing of CPI that is the blip, not July's spike," he said.