Inflation in the UK dropped to 6.7% in August, largely as a result of falling food prices, according to figures released by the National Office of Statistics (ONS) on Wednesday.

The Consumer Prices Index (CPI) for the 12-month period ending in August was down 0.1% from the 6.8% recorded in July.

Experts had expected inflation to rise to 7% but the price rises fell to their lowest rates since February 2022.

The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food and accommodation services, where prices rose by less in August 2023 than a year ago.

Grant Fitzner, chief economist at the Office for National Statistics, said: "The rate of inflation eased slightly this month driven by falls in the often-erratic cost of overnight accommodation and air fares, as well as food prices rising by less than the same time last year."

The Office for National Statistics reported the figures as the lowest inflation rate recorded since February 2022.

Core inflation which excludes energy, food, alcohol and tobacco, dropped to 6.2%, a fall from 6.9% in July.

Read more: UK inflation slows unexpectedly to 6.7% ahead of interest rate decision

What prices have fallen?

ONS findings showed that shifts in pricing across sectors contributed to the overall inflation rate. Experts will closely monitor these trends in the coming months to gauge the broader economic impact but here's a quick take away of the key findings.

Food prices

• Wholemeal sliced bread 750-800g down from £1.35 to £1.21

• Spreadable butter 500g down from £4.22 to £3.86

• Eggs per dozen down from £3.31 to £2.71

• Whole milk 4 pints down from £1.52 to £1.51

In August 2023, food and non-alcoholic beverage prices in the UK saw a modest rise of 0.3%, compared to a 1.5% increase during the same period the previous year.

This resulted in a drop in the annual rate of food inflation, which fell to 13.6% in August 2023, a drop from 14.9% in July and the peak of 19.2% in March 2023, which was the highest annual rate in over 45 years.

ONS findings show that dairy prices where a big factor, with prices falling slightly in July and August this year.

Spreadable butter (500g) was down by 8.5% from £4.22 to £3.86, while whole milk (4 pints) fell 0.7% from £1.52 to £1.51.

Over the last year, eggs saw the largest increase at 22%. But the average price of a dozen eggs has now dropped from £3.31 to £2.71

Vegetable prices increased by 14.3% in the last year and fruit by 5.6%. A kilo of carrots is 67p, up from 60p last year. While a kilo of baking potates is 87p, up from 80p.

Earlier this month research and data consumer agency Kantar, reported that grocery price inflation had dropped to its lowest level in over 12 months at 12.2%, but said this still “won’t be a number to celebrate for many households.”

Their data found that 95% of consumers were still worried about the impact of rising grocery prices and energy bills, impacting British shopping habits.

Read more: Shrinkflation and stagflation: What are they and how could they affect your finances

Restaurants and lifestyle activities

• Indian takeaway, main-course up from £8.65 to £9.33

• Chinese takeaway, main-course up from £6.48 to £6.86

• Cinema popcorn up from £5.41 to £5.71

• Bottle of vodka 70cl up from £14.84 to £16.23

The cost of eating out rose more slowly last month. The inflation rate for restaurants and hotels was 8.3% in August 2023, down from 9.6% in July, and the lowest rate since May 2022.

On a monthly basis prices increased by 0.2% in August 2023, in contrast to a larger 0.9% rise observed in August 2022.

An Indian takeaway, main-course, cost £9.33 this August up from £8.65 last year. While a Chinese takeaway, main course, cost £6.86 compared to £6.48 in the previous year.

Prices for recreational and cultural goods and services rose by 6.0% in the year to August 2023, which is a smaller rise than in July when prices rose by 6.8%. A 70cl bottle of vodka now costs £16.23 up from £14.84 the previous year.

Furniture and household goods

Prices for furniture and household goods rose by 0.2% between July and August 2023, in contrast to a 1.3% rise in the same period a year ago.

Household appliance prices fell in comparison to the previous year, the largest individual downward effect coming from vacuum cleaners.

Household services rose. So a washing machine repair cost the average household £63.98 this year compared to £61.49 the previous year.

Transport costs

Transport prices showed a 0.2% increase between July and August 2023, a departure from the 1.2% fall recorded during the same period the previous year. The ONS reported that the average price of petrol rose by 5.3p per litre between July and August, to 148.5p per litre, while diesel prices climbed 5.9p per litre to 151.1p.

“Slowdowns in price growth in some volatile parts of the consumer spending basket, such as accommodation services and air fares, contributed to the decline," said Martin Beck, chief economic advisor to the Independent Treasury Economic Model.

Housing and household services

The Consumer Prices Index includes owner occupiers' housing costs (CPIH) the annual inflation rate for housing, water, electricity, gas and other fuels was 5.7% in August. This marked a slight increase from the 5.4% recorded in July but lower than the 11.8% recorded in January and February of this year.

Rightmove, reported the average monthly mortgage payment on a typical first-time buyer type property on an average five-year fixed, is now £1,198 per month, a huge hike from £1,039 per month a year ago

“Today’s surprisingly positive inflation news will likely give the Bank of England more confidence heading into tomorrow’s Base Rate decision," said Rightmove’s mortgage expert Matt Smith.

Cheapest supermarket

Big discount retailers have benefitted with Aldi becoming the fourth largest supermarket in the country alongside Lidl.

Aldi grew sales by 17.1% and Lidl by 16.0%.

Traditional supermarkets like Sainsbury’s and Tesco were the fastest growing retailers with by 9.1% and 9.3% respectively in September.

Read more: Bank of England set for last interest rate hike but odds on pause rise

Is the plan working?

The Bank of England is expected to raise interest rates to 5.5% tomorrow, in what is possibly its final increase.

Responding today's ONS data, the Chancellor Jeremy Hunt MP, said, "Inflation never falls in a straight line but it's now down 40% from it's peak. The plan is working. But we need to stick to it: even at 6.7% there’s still immense pressure on family budgets. That means no borrowing binge, which would simply keep interest rates higher for longer."

Labour's Shadow Chancellor Rachel Reeves believes the UK is set to have the "highest Inflation of any major economy this year."

James Smith, research director at the Resolution Foundation, said, "“After months of disappointing data, the Bank of England has finally received some ‘inflation karma’ as price pressures eased considerably in August.

He add that this will strengthen the case that the Bank’s 14 consecutive interest rate rises are now showing signs of putting downward pressure on inflation, and that its rate-rising cycle will soon end.

Economists has cautioned that future hikes may not be written off.

"The BoE could be forced to take further action if inflation remains tilted to the upside," warned Myron Jobson, senior personal finance analyst at Interactive Investor.

Watch: Core inflation, which excludes food and energy prices, fell to 6.2%

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