The UK’s annual inflation rate fell unexpectedly in August to 6.7%, easing some of the pressure on the Bank of England to increase interest rates.

According to the latest figures from the Office for National Statistics slower increases in the cost of food helped the annual inflation rate (as measured by the consumer prices index) fall for the sixth month in a row from a reading in July of 6.8%.

City watchers had expected a slight increase in inflation to the 7% mark – factoring in rising fuel prices for motorists.

With the Money Policy Committee meeting tomorrow the question is whether there is now enough wiggle room to leave interest rates where they are?

AJ Bell head of financial analysis Danni Hewson believes the BoE might indeed stick rather than twist.

“Just like that what had seemed like a sure thing is cast into doubt. Moments after the shock inflation number was released, the market expectation of a Bank of England rate rise began to plummet.

“Within half an hour what had been a pretty nailed on 80% expectation of another quarter percentage point hike fell to a 50/50 chance that MPC members would vote to press pause on this rate hiking cycle, at least for now.

“After a slew of profit warnings from UK PLC yesterday and a GDP figure that sat badly for the UK economy, the news that inflation has continued to cool is likely give policy makers enough wiggle room to adopt a wait and see strategy.

Mortgage Advice Bureau deputy CEO Ben Thompson takes a similar stance:

“Another fall in inflation will fill the nation’s mortgage holders with hope that the tide has well and truly turned. Significant month-on-month falls ramp up the likelihood that the Bank of England will hold off on increasing rates right now. This will likely be a breath of fresh air for those on variable rates or trackers, especially if this means that interest rates are near, or at, their peak.

He adds: “There is better news for those looking to remortgage and, indeed, prospective buyers. This is due to the steady decline of swap rates, meaning many lenders have reduced rates on various deals. Although swap rates remain high in comparison to the past decade, they are some of the lowest rates we’ve seen in the past year”.

Phoebus Software chief revenue officer Adam Oldfield sees reason for cautious optimism too. “Although the fall in the inflation rate is small, we have to take some comfort that it is at least in the right direction, especially given the global rate of inflation.

“This, along with the hint from the governor that the Bank of England may not have to increase interest rates this month while inflation is falling, could be the news many have been hoping for”.

He says tomorrow’s MPC decision will be one waited for with baited-breath.  “However, mortgage rates have already been coming down but the dilemma regarding fixed rates is still one that is not easily answered.

“For a huge number of borrowers, the amount they are now paying for their mortgage is the highest it has been and managing monthly payments is no doubt a worry.  This is reflected in the increase in arrears, which is a problem that lenders will have to manage.”