Inflation in the UK has fallen to its lowest rate in three-and-a-half years, with the Consumer Prices Index (CPI) figure coming at 1.7% in the 12 months to September, down from 2.2% in August.
The official data from the Office for National Statistics (ONS) shows lower airfares and petrol prices were the main drivers behind the surprise slowdown.
However, the largest offsetting upward contribution came from food and non-alcoholic beverages. Prices in this sector rose by 1.8% in the year to September, up from 1.3% in the previous month. This is the first time since March 2023 that the annual rate of inflation for food and non-alcoholic beverages has strengthened, having continually fallen from the 45-year peak of 19.2%. Categories that saw rises this month included milk, cheese, eggs, soft drinks, and fruit, while downward contributions came from bread and cereals.
With the overall rate inflation now below the Bank of England’s 2% target, analysts suggested that further interest rate cuts were now almost a certainty.
The rate is currently 5%. The Bank made a first cut in August but decided to hold them last month.
Markets have already been betting on another cut in November, but the lower-than-expected inflation rate has increased the likelihood of this happening.
Danni Hewson, head of financial analysis at AJ Bell, said a 0.25 percentage point cut is “pretty much nailed on” for November and expectations of a second cut in December having “jumped up”.
However, Yael Selfin, chief economist at KPMG UK, warned that although the Bank would be likely to drop rates next month, inflation is likely to rise again after household energy bills increased this month by around 10%.
