Economists polled by Reuters had expected the consumer price index to rise to 6 percent from 8.<> percent in July, as a jump in fuel prices and a higher tax on alcohol helped boost annual inflation for the first time since February.
The sudden drop in inflation pushed the pound sharply lower against the US dollar and the euro, as investors trimmed their bets on future interest rate hikes by the Bank of England.
The Office for National Statistics said the decline was driven by lower hotel prices and airfares, which are often volatile, and lower higher food prices than at the same time last year.
The Bank of England said last month it expected inflation to rise in August to 7.1 percent before falling sharply to around five percent in October, which would still be above its <> percent target.
The rate is expected to be raised for the 5th consecutive time on Thursday to 5.5 percent from 25.<> percent. Many economists believe this could be the latest rate hike in the Bank of England's tightening cycle as the UK economy slows.
Core inflation, which excludes volatile food and energy prices, fell more than the headline rate to 6.2 percent from 6.9 percent in July. The Reuters poll had pointed to a reading of 6.8 percent in August.
Economy shrinks at the fastest pace in 2023
Figures released by the Office for National Statistics last week showed that Britain's gross domestic product contracted by a larger-than-expected 0.5 percent in July, marking the biggest drop this year.
These figures add evidence that the British economy is losing momentum in the face of a sharp increase in borrowing costs.
That could give some Bank of England policymakers pause when they decide, Thursday, September 21, whether to raise interest rates again in their battle to tame inflation.