Inflation rate falls

The annual rate of inflation in the UK, as measured by the Consumer Prices Index (CPI), fell back to 2.5% in August from 2.6% the month before.

The Retail Prices Index (RPI) inflation measure, which includes housing costs, fell to 2.9% from 3.2%, the Office for National Statistics (ONS) said.

The fall was partly due to smaller rises in furniture and gas prices.

The CPI inflation rate rose in July, but has been falling steadily since peaking at 5.2% in September last year.

The latest figures show that prices were 2.5% higher in August than they were in the same month last year.

The ONS said smaller rises in the price of clothing had also contributed to the fall in the rate of inflation - the price rises recorded in July had been the largest on record.

This helped to offset bigger rises in the price of petrol and a rise in the cost of rail travel, which had fallen a year earlier.

Analysts had expected the CPI rate to fall following the rise to 2.6% in July, which was also down to rising air fares and an early end to sales due to the Olympics.

They said they now expected the inflation rate to continue to fall towards the Bank of England target of 2%.

Analysts suggested that the falling inflation rate eased concerns that the Bank's policy of pumping money into the economy to stimulate demand - known as quantitative easing (QE) - could lead to inflation picking up.

The UK economy has contracted for the past three quarters and the Bank announced another £50bn of QE in July, taking the total amount of money it has injected into the economy under this programme to £375bn.

Some analysts suggested this total could rise again later this year, as the economy struggles to exit recession.