The UK inflation rate fell to 1.5% in August as the cost of petrol, food and non-alcoholic drinks declined, the Office for National Statistics said.
It means inflation has been below the Bank of England’s 2% target for 8 months, the longest stretch since May 2005. The Bank will now be under added pressure to consider raising interest rates from their record low of 0.5%.
Prices of food and non-alcoholic drinks fell by 1.1% - the steepest fall since 2003 – as competition between rival supermarket chains pushed down prices. However, the gains were offset by a rise in the cost of clothing, transport services and alcohol. It means that a basket of goods and services which cost £100.00 in August 2013 would have cost £101.50 in August 2014.
Despite claims the UK property market is cooling, figures also released by the ONS showed house prices grew 11.7% in the year to July, hitting a new record average of £272,000. It’s the biggest surge in seven years, driven by a 19.1% annual increase in London to £514,000. House prices in the capital are now 39.7% higher than January 2008, their previous peak.
Prices paid by first-time buyers were 13.5% higher on average than in July 2013, with the average first home costing £209,000.
Overall, house prices increased 12.0% in England, 7.4% in Wales, 7.6% in Scotland and 4.5% in Northern Ireland over the year:
Recent surveys have suggested London's red-hot property market is cooling, with price rises slowing as more homes come on the market.
Property website Rightmove said last month that the average asking price for London homes which came on the market in August was 5.9% lower than in July as an influx of properties for sale forced sellers to price more competitively.
A stronger pound has also made London less attractive to foreign investors in recent months, on top of a number of tax changes including a rise in the levy for non doms and an increase in stamp duty.