LONDON (AP) — The U.K's annual rate of inflation dropped back to 2.5 percent in August, down from 2.6 percent in July, encouraging expectations that the Bank of England will introduce more monetary stimulus this year.
Lower month-to-month price increases for furniture, household equipment and maintenance were the main downward pressure on the Consumer Prices Index, the Office for National Statistics said. Prices in that category rose by 0.8 percent from July, compared with a 2 percent hike a year earlier.
The main upward pressure came from gas and diesel fuel which were 7.1 percent more expensive than in July, compared with a 3.7 percent drop last year.
The government's official inflation target is around 2 percent year-on-year. Consumer price inflation recently peaked at 5.2 percent in September 2011, and has been above target every month since December 2009.
With Britain's economy in a double-dip recession, many in the market believe the Bank's Monetary Policy Committee will expand its program of asset purchases in November beyond the current ceiling of 375 billion pounds ($609 billion).
"Extended weak economic activity rather than inflation remains by far the main problem facing the U.K. economy," said Howard Archer, chief European economist at IHS Global Insight.