According to data released on Wednesday, although there were further indications of pressure on core and services prices, which the Bank of England is constantly monitoring, British inflation declined as anticipated in July to its lowest annual rate since February 2022.
Annual consumer price inflation decreased to 6.8% from 7.9% in June, as forecast by the BoE and a Reuters poll of experts, easing farther away from the 41-year peak of 11.1% in October while still well above the central bank's 2% objective.
The statistics led to a small increase in sterling's value relative to the US dollar, which strengthened betting that the BoE will continue its campaign of interest rate increases.
According to the ONS, the main contributors to the decline in inflation were lowering gas and electricity prices, together with an easing of food price inflation.
Only Iceland and Austria have higher inflation than Britain, which maintains one of the highest rates of price growth in Western Europe despite the decline in the headline statistic.
According to Ruth Gregory, economist at consultancy Capital Economics, "wage growth and services inflation both stronger than the Bank had expected, it seems clear that the Bank has more work to do."
The BoE keeps a careful eye on consumer services prices and core inflation, which excludes volatile food and energy prices.
Core inflation stood at 6.9% in July, unchanged from the figure in June and higher than the 6.8% rate predicted in a Reuters poll.
Inflation for services increased to 7.4% from 7.2% in June.
The BoE's Bank Rate is currently 5.25%, and financial markets on Wednesday indicated that there is a roughly two-thirds likelihood that it will increase to 6% in February.
"While price increases are easing, the race is far from over. In response to the findings, finance minister Jeremy Hunt said, "We must keep to our objective to halve inflation this year and get it back to the 2% target as soon as feasible.
The figures could signal the beginning of real wage growth again, which has been negative since April of last year when CPI adjustments were made.
Factory gate prices decreased by 0.8% in the year ending in July, the lowest figure since October 2020, showing a future deterioration of the manufacturing sector's contribution to inflation. The price of manufacturing inputs decreased by 3.3%, the most since May 2020.