Business is booming.

Global markets wobble on the heels of U.S. stock plunge.

UK consumer prices rose 9.9 percent in August from a year earlier, a slight decline in inflation and the first decline in nearly a year, suggesting inflation has peaked or is close to it .

While this sign of a reversal in the inflation trajectory is likely to provide some relief for lawmakers and policymakers, it will provide only limited comfort to consumers. With prices rising at the fastest pace in 40 years, households are still feeling budget pressures and the Bank of England will continue to be under pressure to raise interest rates.

Inflation fell from 10.1 percent in July, the Office for National Statistics reported Wednesday. A fall in the price of motor fuels lowered inflation, as did smaller upward contributions from the price of food and clothing.

Inflation last fell in September 2021, when the effects of the end of widespread discounts in restaurants the previous summer eclipsed the annual calculations of price changes.

According to a Bank of England forecast last month, inflation in Britain would reach 13 percent in October and could rise again in January – each time owing to a rise in the government’s price cap on household energy bills to avoid rising wholesale prices for energy bills. natural gas. But those predictions were dashed last week when the newly installed Prime Minister, Liz Truss, announced she would freeze utility bills for the next two winters at an average of £2,500 ($2,880) a year.

Ms Truss said she expected the move to lower expected inflation by as much as five percentage points.

Analysts also quickly lowered their forecasts.

Inflation will peak slightly higher in October, at nearly 11 percent, and then “seem to fall sharply next year” due to the government’s new energy price cap, Samuel Tombs, an economist at Pantheon Macroeconomics, wrote in a note to customers on Wednesday. .

In addition to dampening inflation, the policy is expected to put more money into people’s pockets and lessen the severity of an impending recession.

But the policy risks making high inflation more persistent, even if the general rate does not rise. The freeze on utility bills will allow households to set aside less money for gas and electricity, instead spending it on restaurants and travel. This keeps the pressure on the central bank to contain the economy with rate hikes in an attempt to eradicate high inflation. The bank aims for an inflation rate of 2 percent.

Core inflation, a measure of price increases excluding volatile energy and food prices, stood at 6.3 percent in August, up slightly from 6.2 percent in July.

What the Bank of England cares about, Huw Pill, the central bank’s chief economist, said earlier last week, is the medium-term impact of fiscal policy changes, as opposed to any short-term decline in key inflation.

Economists expect the bank to raise interest rates by another half a percentage point to 2.25 percent when policymakers meet next week. The meeting was postponed for a week, until after the national mourning period for Queen Elizabeth II.

But the more superficial outlook for inflation over the medium term makes it less likely that policymakers will have to “strangle the economy” by raising interest rates as high as 4 percent, which traders had recently expected, Mr Tombs wrote.

Inflation in Great Britain has been strongly influenced by energy prices, especially natural gas. But even if energy prices fall, the effect on inflation will persist. Over time, companies and workers will continue to adjust their prices and demand higher wages to make up for lost profits and reduced purchasing power due to higher inflation. This challenge, and the attempt to keep expectations about future inflation low, is why central banks have raised interest rates in larger increments.

On Tuesday, data showed that inflation in the United States did not decline as quickly as economists had expected. This keeps the pressure on the Federal Reserve to raise interest rates aggressively, and the S&P 500 index fell more than 4 percent, its worst day since June 2020, ahead of the central bank’s moves.

For many UK consumers, price increases are still painfully high. Food prices rose 13.1 percent in August from a year earlier, the fastest pace in 14 years, with milk, cheese and eggs in particular driving inflation.

Ocado, an online supermarket company, said on Tuesday that its customers were buying less and seeking “value for money” items in response to inflationary pressures. Food prices have risen by 7 percent in the past year.

Wages cannot keep up with these high prices. Wages, excluding bonuses and adjusted for inflation, fell 2.8 percent in the three months to July from a year earlier, one of the largest declines since comparable records began 20 years ago.

Across the country, workers in various industries have gone on strike to demand wage increases more in line with the rising cost of living. Another eight-day strike will begin later this month in the port of Felixstowe, Britain’s largest container ship dock, and overlap with strikers in the port of Liverpool.