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Living costs drop - inflation falls

Inflation fell to its lowest level in over a year in August, and the cost of living is also coming down, according to official data from the Office for National Statistics (ONS).The consumer price index (CPI), which the government uses to measure inflation, dropped to 1.8 per cent from 1.9 per cent in July, causing some to speculate that UK interest rates may not have to be raised again.Inflation has now dropped well below Bank of England's two per cent target, with the ONS citing lower costs of financial services and mortgage exit administration fees as having had impact, as well as lower energy bills, cheaper clothing, footwear and appliances, which have all benefited consumers.Global Insight chief economist Howard Archer commented on the figures: "The August consumer price inflation data are pretty encouraging overall for the Bank of England, making it even more likely that interest rates have peaked at 5.75 per cent. "Nevertheless, we believe that the Bank of England will remain very wary for now about any early trimming of interest rates, given that current elevated oil prices and possible future rises in food prices could exert upward pressure on inflation over the next few months." "The Bank of England remains firmly in 'wait and see' mode for the time being, although we do anticipate that the next move in interest rates will be downwards," he added.

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